The 6 Principles For Managing Continuous Innovation.

This post is based on Managing Continuous Innovation In A Rapidly Changing World by Annika Steiber (Springer) and utilizes some of that book’s language and phraseology.

The economy, and every system and sub-system within it, including all markets, are continuously changing. Customer preferences change, technology changes, competitors change, regulation changes, new creative ideas change what’s imagined and what’s expected, new research delivers new possibilities, politics changes the parties in charge of government, nothing is static or fixed or stable.

One of the contributors to continuous change is innovation: the application of new inventions or new combinations of resources or implementations of new ideas in commercial markets to serve customers in new, different or better or cheaper or faster ways. Innovation improves customer value. Since the best value and the greatest satisfaction are what the customer most desires, innovation will make them switch, change their behaviors, select new suppliers and vendors, and make their sovereign contribution to the rate and degree of change.

The task of firms and their management teams is to deliver this continuous innovation flow to the market. The process can never stop, and its tendency is to accelerate, as the evolution of technology opens up new prospects for customers to imagine new ways for their goals to be reached, their needs to be met, and their dissatisfactions to be removed. On the supply side, new startups are emboldened, growth is lavishly funded, and new business models are tested. There is no rest for business managers.

This poses an existential problem. Our thinking about business management has historically reflected a preference for stability and predictability. We look for stable earnings from our public companies. We look for companies with a stable structure and strong organization based on hierarchical models with a dominant CEO. We look for well-established brands that command customer loyalty and generate reliable cash flows.

Annika Steiber is the Director of the Rendanheyi Silicon Valley Center at Menlo College. Her position provides an immediate clue to her unconventional thinking about firms and their organization. Rendanheyi is a new idea about companies and their structure, indeed their entire rationale, originated by the Chairman of Haier, Zhang Ruimin. Here’s how he describes the import of Rendanheyi:

It’s now time for every employee to be his or her own boss. Even Peter Drucker told us that ‘everyone can be a CEO’. And if everyone acts as a CEO, we will grow collectively as an enterprise, and no longer be dependent on a few key people.

So, with the RenDanHeYi model we move away from being like an empire (with a traditional, closed pyramid) to be more like a rain forest (with an open networked platform). Every empire will eventually collapse. A rain forest, on the other hand, can be sustained.

Literally, “Ren” refers to each employee, “Dan” refers to the needs of each user, and “HeYi” refers to the connection between each employee and the needs of each user.

There are no managers calling the shots at Haier, and no-one telling employees what to do. The spirit is self-organization. Small entrepreneurial teams run their own businesses, petitioning for internal venture capital when they need it to initiate a new innovation.

Haier represents one form of organization for continuous innovation. Professor Steiber, via a global multi-corporation study of innovative companies, including US-based examples such as Google and W. L. Gore, has developed a set of 6 principles by which firms can maintain continuous innovation in a fast-changing world environment.

Dynamic Capabilities

This is the company’s ability to integrate, develop, and reconfigure internal and external competencies to meet rapidly changing surroundings. Dynamic capabilities are seated in firms that accept that change is continuous, and firms that change continuously can be more profitable than those that prefer stability. The basis for dynamic capabilities lies in sensing subjective value, i.e. what customers and customer groups value and how this is changing, and developing innovative new pathways to customer-perceived value, and seizing the opportunity to bring the innovation to market quickly. Dynamic companies are able to quickly reallocate resources to these new innovation pathways.

A Continuously Changing Organization

Continuously innovative companies must continuously change their organization – not just when the need arises, but via a constant, continuous, proactive process of change. This process is not orderly. It involves self-organizing, where there is no central governance directing people or business units how to act. Employees have freedom to improvise based on data from the marketplace, adapting when conditions and the environment change. The organization is not structured. The binding agents are the shared understanding of objectives, a shared culture, and shared information. There is collaboration, but no top-down direction. Teams can form and disband and re-form. Projects can be initiated by small teams close to the customer. New solutions arise out of synergy between teams and units, even while those teams and units are changing.

Continuous innovation companies are conscious of three time horizons simultaneously: history, the present, and the future. Time-axis thinking involves experimentation to obtain knowledge from each horizon: examining previous experiences for future value, adapting to relevant real-time experiences, and launching multiple experiments to determine what will work and what won’t in the future. Leadership and management communicate the overarching objectives so that employees and teams can use them as the basis for their own independent decisions on each time horizon. Management may also be able to play a synchronization role by identifying and sharing patterns that may emerge from the analysis of multiple experiments across multiple units and teams.

A People-Centric Approach

Traditional management focuses on control, especially control of people: telling them what to do and how to do it. Continuous innovation requires the opposite approach: belief in individual creativity and in releasing the inherent innovative powers of every employee. Innovations can arise anywhere in a company, and it should be organized as a river system, enabling ideas and initiatives to flow unencumbered to the endpoint of marketplace implementation and customer satisfaction. Control gives way to implicit guidance – values and guidelines and shared orientation. There is a direct positive correlation between the treatment of employees and the innovation performance of the organization. People are the most important asset.

An Ambidextrous Organization

Continuous innovation might sound like chaos to traditional managers. In fact, close to chaos and far from equilibrium are happy places for innovators. But the everyday business of the company must continue in a disciplined fashion: producing, delivering, serving customers, gathering data. Continuous innovation companies are good at both the everyday and the futuristic. Some companies separate the two, and establish an innovation arm, but that is not a necessity. The two parallel missions can co-exist in the same company so long as there is a shared objective.

An Open Organization That Networks With Its Surroundings

A lot of business thinking entertains boundaries – the boundaries between a firm and its suppliers and partners, for example, and the boundaries between industries. Modern systems thinking emphasizes openness – the permeability of systems that encourages interaction with the environment and is a source of the active, continuous and often unpredictable change called emergence. A company must be an open system if it is to thrive over the long term. An open system searches beyond itself for innovations that can increase revenues, accelerate growth and contribute to robust commercial health. Networks and alliances with customers, suppliers, start-ups, universities, and sometimes even with competitors can serve as crucial resources for a company’s innovations. The flow of ideas must include those originating outside the organization.

A Systems Approach

Management theories have been built on foundations of structure, process, competitive advantage, resources, industry “forces”, and many more. None of these is adequate for the digital age. A systems perspective is required. A systems view focuses on the connections between and interactions among its components and characteristics. Systems viewed in this way can generate emergent results and emergent capabilities, whereby the output of the whole system is greater than merely the capacity of its components.

Guidance is provided by the long-term mission and human purpose of continuous innovation. The system culture is common to every individual and every division and unit. The system is committed to learning and adapting. The system’s purpose is innovations and surprises. The energy is provided by creative individuals, unleashed to innovate, each guided by the shared orientation. A system can’t be managed but it can be guided by an intent to generate customer value and an aspiration to make a better world.

Principles And Practices

Annika Steiber’s 6 Principles are translated into a set of practices that can act as practical guides to any company seeking to achieve continuous innovation. I’ll try to summarize them in a future post. In the meantime, you can find Professor Steiber’s book here.