Good at your job, but bad at innovation? Here’s one reason why.

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Innovating can be a challenge for established firms.  Some the reasons for this range from inflexible management structures, to unsuitable organisational design to inappropriate systems of incentives.  I can’t speak to all of those, but what I can speak about is the constraint that being really good at your job puts on your ability to innovate.

One of the things that makes people successful in their field is their mastery of the rules of that govern that field.  These rules can be technical in nature, for example engineering or accounting standards.  These are ‘hard’ rules that are usually written down and are relatively easy to identify.  Alternatively rules can be ‘soft’ in nature, for example collective organisation behaviours.  These unwritten rules often define what needs to be done to get ahead in a business, for example, expectations about the hours spent at your desk (as opposed to the quality of your output!).  In all cases, learning and mastering these rules tends to go hand in glove with a rise up the ranks.

While there are some obvious downsides to that, there are upsides too.  Mastering the rules means that a lot of behaviour becomes automatic, freeing you up to deal with more complex tasks.  This is one of the things that distinguish more experienced practitioners from the less experienced ones.  By being familiar with the rules, mundane activities can be completed much more efficiently as you don’t have to sit down and think about what needs to be done – you just get on and do it.  This allows you to add more value in a context where productivity is important.  So mastering the rules is a valuable capability in most business environments.

Where it falls down though, is where the environment is uncertain and non-standard behaviours are required to be successful.  This is one of the reasons that a transition from a large, established corporate environment to an entrepreneurial one can be difficult.  Predictable action based on established rules can be totally at odds with the dynamic, undefined and unstructured nature of small, start up endeavours.  Conversely, the transition from a fluid, open environment with unformed rules into a highly structured business can be traumatic as well.  What makes you successful in one isn’t likely to make you successful in the other.

This problem is even more evident where innovation is the name of the game.  Those ingrained rule-following abilities that are fused into minds over the years can be a real barrier to developing truly innovative ideas.  This is largely because follow a set of rules provides a predictable set of outcomes; this is the point of having rules in the first place.  However, innovation involves the deliberate use of uncertainty which can mean breaking the rules.  But really successful people have embedded these rules into their behaviours and make them part of their habits, habits which are difficult to because people are no longer consciously aware that they govern their behaviour and thinking.

A couple of recent experiences highlighted this problem for me.  Firstly, I had an engagement where a client had asked an engineering firm to come up with some cost savings on a new technology.  A group of engineers were gathered around the table to brainstorm the issue, and the discussion centred on optimising the engineering of the current solution.  That was great, but it wasn’t going to bring about the step change in costs that the client needed.  Refining a design based on ‘normal’ or ‘good’ practice wasn’t going to be enough.  The rules had to be broken.  Eventually we came up with an innovative solution, but it took time to break the team out of their engineering habits on what was a relatively simple piece of work.

A second experience involved a tender for significant piece of engineering infrastructure.  Upon reviewing the preliminary design provided by the client, the (very experienced) engineering team decided that it had been well designed.  However, to win the job, the business needed to bring innovation to the table.  By agreeing that the design was done well, what the team was saying was that the rules that they use for designing this type of work had been effectively applied to this project. This was a great validation of our systems of education – it had produced a cadre of skilled engineers that could efficiently design large infrastructure projects in a similar way, despite their differing organisations.

However, drilling down into those comments it became clear that a whole range of assumptions weren’t appropriate for this particular project.  The high standards normally applied to public projects of this type weren’t mandatory for this work, meaning that far more radical approaches could be taken.  Old rules could be abandoned in favour of (in this case) better ones.  Once the veil of familiarity had been lifted from the team, a whole range of innovative ideas were thrown into the mix and the challenge become one of narrowing them down, rather than coming up with them in the first place.

Both of these examples highlight that part of the challenge to coming up with innovative ideas is finding ways to see what is taken for granted.  It’s a forest for the trees type of problem, but there are tools that can help the process.

One is to get someone involved who is completely unfamiliar with the task at hand. They ask the ‘really stupid questions’ that can allow a team to see what assumptions are being made without even knowing that they are being made.

Another is to use the questioning technique outlined in the recent book by Warren Berger, called A More Beautiful Question.  This book is focussed on asking questions rather than moving straight into solutions.  Berger defines A More Beautiful Question as ‘an ambition yet actionable question that can begin to shift the way we perceive or think about something – and that might serve as a catalyst to bring about change’.  His basic framework for achieving this is start by asking ‘why’ something is as it is at the moment.  This is followed by asking ‘what if’ and then ‘how’.  To get a feel for how that works, you’ll need to read the book, but I like the process because it forces a rethink of assumptions that underpin how things are today, providing space to think about innovative ways to approach old problems.

Another good reference is Gamestorming by Dave Gray, Sunni Brown and James Macunufo.  The book is a collection of techniques for idea generation and development aimed at creating breakthrough innovations.  The book is particularly useful because it presents a wide range of tools to choose from, all of which are set into a context of creating change.

Above all of these though is the explicit recognition that the things that make people successful in the past won’t necessarily make them successful innovators in the future.  The things that make someone an engineer, accountant, technician, IT guy or programmer are also the things that can constrain their imagination and ability to generate out of the box solutions.  The good news is that it doesn’t take much to turn that around.  Breaking the habits of a working lifetime can actually be relatively easy once you recognise where you’ve come from and how it shapes your thinking.  The most dangerous course of action is to assume that what’s served in the past will serve in the future.  Once that hurdle is overcome, what makes you good at your job today can make you even better at your job in the future, as it opens a whole range of possibilities that the rules simply don’t anticipate.

He who controls the past controls the future

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He who controls the past controls the future. He who controls the present controls the past.

GEORGE ORWELL, Nineteen Eighty-Four

What has been done, thought and felt in the past constrains what is likely to be done, thought and felt in the future. In other words, the past has a tendency to shape the future. This might seem an unremarkable thought, but its impacts play out in significant ways when thinking about innovation.

Why? Well, innovation involves something new and something new means adaptation of some kind. And since innovations are used by people, it’s the adaptations that people need to make – at the individual level, as well as the level of the firm and the economy – that determine the fate of most innovations.

At the level of the individual, human beings have evolved to have highly efficient ways of dealing with the world. We start out asking an endless series of questions to help understand the world around us. As we get older though, we start to develop classifications systems for accommodating new information. We also develop heuristics which aid in decision making, so we don’t need to think about every situation from scratch. This allows us to efficiently deal with complex problems, but it also creates constraints in the way that we think.

Warren Berger outlines the problem this presents for creativity in his recent book A More Beautiful Question. In that text, Berger points out that the number of questions asked by children declines significantly after the age of 4 – partly because educational systems discourage questioning (which can challenge authority) and partly because children start to develop systems for dealing with new information, rather than relying on questions. He then points out that a consequence of this change is that we have a reduced ability ask questions that can lead to the creation of truly transformative innovations. Our thought patterns, behaviours and habits also influence our receptivity to new ideas as well as our understanding of them which in turn places constraints on how or whether we adopt those transformative innovations.

At the level of the firm, this process is repeats itself. In their early stages, new enterprises tend to be a hotbed of innovation, as ways of thinking and doing business remain relatively fluid. However, over time these tend to become solidified into what we call corporate culture. In many ways this is a good thing. It reduces the amount of effort required to get things done, it can free up mental capacity to deal with the unexpected and it creates the continuity that allows firms to survive staff changes. However, it also constrains what a business can do.

Clayton Christensen made this point in his seminal text, The Innovator’s Dilemma. In that book, he points out that well run established firms, run by capable people, can fail because of their inability to change and their commitment to the past. This is one of the central tenants of disruptive innovation and a powerful demonstration of how the past can influence the future when it comes to both the production and adoption of innovation.

Finally, a similar pattern occurs at an economy wide level. There are a number of strains of economic theory that use evolutionary models to help predict patterns of economic development. These models assume that change originates from a number of sources, but that the prior state of the system influences the direction it can realistically move in next. At a practical level, this seems entirely sensible. You wouldn’t expect us to move from the internal combustion engine to hydrogen powered hover cars in a single step; the mental leap would be as problematic as the technological one. As a result, economies follow a smooth trajectory of technological development, even when some individual innovations are radical or disruptive in nature.

So what does this mean for the development and adoption of innovations? In terms of innovation, it highlights that unconventional thinking can be needed to develop the breakthrough ideas that underpin high value developments. This idea is regularly explored in discussions of innovation culture and the innovation process more generally. What gets less attention though is that the very people that are expected to be the adopters of an innovation may well be constrained by their prior thinking in adopting that innovation. The translation of novel ideas into practical technologies that are widely taken up needs to consider both the creation of the innovation itself, as well as the context into which it is introduced. Current thinking can constrain adoption, or stop it altogether (with innovations of the alter type often being described as ‘before their time…’).

There are ways around this, of course, but it requires a degree of self-awareness and knowledge of the patterns that direct our decision making. Another good example of how to avoid the past constraining the future is the lean startup movement. This approach looks to place a ‘minimum viable product’ into the market before executing a series of ‘pivots’ to find out what will really work, rather than guessing beforehand. This can still come unstuck if you ask the wrong people based on prior expectations of your market. But it’s a step ahead of being an unconscious slave to yesterday.

Steel cage death match? Utilities vs technological innovation

The pace of technological and business model innovation in the energy industry continues unabated.  But what sort of reception is this getting in the utilities?  Can innovation force its way into such a well-established system, or can the system continue to control the rate of innovation adoption?  A couple of posts this week provide some insight into what could become a ‘steel cage death match’ for the utilities as they seek to fight the growing pressures created by technological innovation.

As a starting point for the discussion, it’s worth noting that the electricity industry is an incumbent technological system, which has developed highly standardised technologies, design methodologies, rules and regulations since AC supply won the war of the currents in the 1880s.   As a result, the system exhibits the characteristics of a technological regime, which defines the sorts of innovations that are acceptable within it, and which are not.  The technological lock-in that this creates is an incredibly powerful mechanism for selecting and rejecting new technologies.

Contrasting with this stability are renewable energy technologies and the business models that they enable.  These represent potentially disruptive innovations that may end up replacing incumbent thermal power generation technologies while facilitating the transformation of the electricity industry itself.  According to disruptive innovation theory, the incumbent industry is only likely to react to the transformative effect of these technologies when it is too late to do anything about it.

Returning to the question of innovation versus the system, two posts in reneweconomy last week provide insights into the dynamics of technological change in the electricity industry.  One identified an innovative approach to the management of distributed energy generation and storage that might well support a future business model for utilities that keeps them relevant (see here); the other highlighted how these same utilities are changing the rules to stop the adoption of this type of innovation in an attempt to preserve their 20th century business models for just a bit longer (see here).

The former described how a US based smart energy start-up company is enabling the creation of ‘virtual’ pools of energy through the aggregated management of solar and energy storage technologies.  This approach uses a combination of cloud based technologies with distributed solar and batteries to create dispatchable energy out of an otherwise unpredictable resource. In contrast to the ‘death spiral’ risk presented by distributed energy, this model appear to be an ideal way to keep pole and wire networks relevant into the foreseeable future.

In contrast, the later post described how utilities in Queensland, Australia, are acting to limit the ability of consumers to send energy back into the grid.  While this seems sensible within the constraints of the existing electricity system and its understanding of energy delivery, it denies the advancing trend of innovation in the industry.  The history of technological development suggests that innovation in the industry will continue to advance faster than the current technological system can adapt to it – particularly when that innovation takes place outside the established industry.  Trying to shoehorn technological advances into historically derived operational models is only likely to force innovators to find ways to circumvent the system, leading to its accelerated demise.

The dynamics of technological change within large technological systems differs from those of, say, consumer products, where rapid obsolescence and product substitution seem to take place at a dizzying pace.  A reliance on complementary infrastructure and established expectations around energy supply mean that change takes place at a more measured pace in the electricity sector.  But change does occur and systems can only accommodate a certain amount before a break point occurs.  And in this case, it means that the technological trajectories established over the past 130 years may take a decidedly different direction.  In these circumstances, it’s not just the technology that will change, but the wider system itself, including supply chains, industry structures and the people that determine the future of the system itself.

While this might sound a little apocalyptic, my own research confirms that change like this can occur.  The question though, is what does it mean to the established electricity system and those who seek to develop and promote technological innovations?

Well, the adoption of potentially disruptive technologies within technological systems requires the modification of the system as well as the technology.  This means that technological innovators need to examine the technical as well as non-technical barriers to adoption of their innovations and undertake their product development accordingly.  This can include modifying technology so it functions more like incumbent technologies in some way.  For example, in the case of the electricity industry this can include implementing control systems that more easily integrate into utilities’ normal network management practices.  Sunverge are doing this by allowing the networks to access functionality such as the voltage regulation and frequency control functions of energy storage and solar energy technologies.

Similarly, the system (i.e. the people that run it) needs to recognise that adaptation is required to accommodate technological innovations.  In contrast to the action by Ergon and Energex in Queensland, utilities need to acknowledge that the adoption of technological innovations is not totally in their control and adapt the system accordingly.  The retrograde action described in reneweconomy indicates that these utilities, at least, are looking backwards rather than forwards.  This presents significant risk for them, particularly where disruptive innovations such as energy storage are involved.  In this situation, they risk being excluded from the future of the energy market as these innovations evolve faster than their ability to adapt to them.  While they may think they can anticipate and control where this type of innovation might go, history suggests that rear guard actions to combat disruptive innovation leads to an elimination of the laggards, not the preservation of incumbency.

So like good jujitsu fighters, innovators and the system need to recognise the transformative potential of disruptive innovations and harness the forces that accompany them.  In this way they can remain leaders in the field, rather than becoming defeated antagonists consigned to the sideline of technological history.

Are electric utilities on the cusp of being made redundant?

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Electricity utilities may be on the road to irrelevance, and there may be nothing they can do to stop it.

There was a blog post recently describing the threat posed by new energy technologies to electricity utilities in Australia (see here).  The article describes how these utilities have realised that solar combined with the emergence of energy storage technologies poses a threat to their business models.  The problem that this creates is that it allows more and more consumers to either generate their own power, or  go off the grid altogether, leaving fewer and fewer people paying for the maintenance of expensive fixed electrical infrastructure.  This problem is often referred to as the ‘energy market death spiral’ (for a detailed description of the issue, see here for a paper by AGL’s Paul Simshauser).

The emergence of solar and energy storage technologies certainly present a problem for regulated electricity utilities, but the issue is far more of a threat than is commonly believed.   This is because these technologies display classic features of disruptive technologies and the environment in which they exist is fertile ground for the type of industry change that these innovations create. 

In terms of the technology, solar is quickly approaching the point where it can generate power at a similar cost to centralised coal fired generation in certain circumstances.  However, for a long time solar has been relatively expensive.  As a result it has been used in niche applications, where its scalability, environmental benefit or ability to supply power to remote sites was valued over the cost of generation.  More recently however, these niches have been used as footholds to improve performance to the point where solar is ‘good enough’ for a wider range of applications.  This process of starting out with poor performance, followed by rapid improvement in niche markets to a ‘good enough’ performance level is a hallmark of disruptive innovation.

The second issue here is how the incumbent market behaves in response to the rise of a potentially disruptive technology.  While incumbent utilities have responded to wind by being large buyers of the technology, solar and energy storage present a different challenge altogether.  The evolution of the electricity grid has been partly built on the need to provide reliable, high quality electricity to the end user – issues such as availability, power quality and network stability are at the heart of network design and the associated maintenance strategies.  The problem this creates is that technologies like solar (and not so long ago, wind) are perceived as being ‘mickey mouse’ in nature because of the quality of both the product and the power they produce.  In true disruptive fashion, this means that utilities continue to think the way they always have – that is, how do they maintain quality of supply when their  revenue base is being eroded by solar (and soon, by energy storage as well).  Instead of focussing on how they can ‘eat their own lunch’ by getting into the solar/energy storage game, they will continue to defend their traditional business models, looking for changes to network tariff structures and cost reduction to avoid the erosion of their income streams.

This is classic disruption.  When an incumbent continues to apply existing management thinking to serve their existing customers better, then disruptive innovations can sneak up on them and change the rules of the game completely.  These businesses will remain well run, with competent decisions being made by skilled managers, but they will be the wrong decisions.  This attitude can be seen in a figure published by the Australian Energy Market Operator and reproduced by Renew Economy (below).  In this figure, new technologies are shown as having decreasing ‘industry value’.  If you were to change the right hand axis to ‘customer value’, the curve would increase from left to right, not the other way around.  This style of thinking is real problem faced by utilities, not the loss of customers and their associated revenue base.

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As a result, the future of electricity supply may not have ‘networks’ involved in it at all, and it is this future that utilities should put their minds to.  Because solar, wind, energy storage and other technologies yet to be on their radar could change the game completely.  So while utilities might be the best player on the network field, the reality is that the game might be played on another field altogether.  And they will be left wondering what happened, long after their expensive, well maintained networks have ceased to be relevant to the rest of us.

So… what changes faster, technology or people?

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So… what changes faster, technology or people?  And does it matter?

It’s a relatively well accepted truism these days that the pace of technological innovation is increasing.  Access to ever increasing levels of computing power, innovative and easy to use design tools, and techniques such as crowdsourcing means that ideas can be brought to market more quickly and easily than ever.  But does this mean that people – and society – are equipped to deal with these innovations?  And what if the innovations are disruptive in nature?

In general terms, technological innovation advances faster than the social fabric needed to support it.  Traditional innovation adoption models capture this in the idea of innovators and early adopters, who will take up a new technology well before the large majority of the population.  This process reflects the fact that technologies are both social and technical in nature.  This can be seen with more complex technologies, where there needs to be a certain level of knowledge relating to a technological innovation before it can be widely adopted.  More broadly, the social infrastructure needed to support an innovation can extend beyond knowledge to norms and values, or expectations about what technologies represent legitimate innovations within society. Innovators and early adopters tend to be socially aligned with newly introduced innovations, and are more likely to adopt them early in their lifecycle as a result.

A good example of this is Google Glass.  This innovation could transform the way that people relate to the word through the implementation of augmented reality in daily life.  But Google Glass is both embraced and rejected at the same time, as people who have norms and expectations consistent with the innovation adopt it, and those that don’t shy away.  Despite the obvious innovation involved with Google Glass, the social evolution required to ensure its widespread success is yet to be realised.

When the innovation is radical in nature (and arguably Google Glass is), then the timeframe from introduction to widespread adoption can be quite long.  When the innovation is disruptive in nature, then the problem can be multiplied as not only do people need to understand the technical aspects of the innovation, but they may need to significantly adapt their norms and expectations before adoption can proceed. This is because disruptive innovations tend to displace the prior technology as well as the social fabric that surrounded them, which is no mean feat.  And they may fail on one or both dimensions, becoming innovations that were ‘before their time’, consigned to the dustbin of innovation history.

The take away from this is that when considering the potential for an innovation, both the technical and the social impacts need to be considered.  Technical prowess – which is often the focus of the enthusiastic innovator – is only one driving force for the adoption of an innovation.  Social change can be a powerful ally or a powerful foe in the quest for innovation adoption.  A careful examination of the social as well as the technical can therefore go a long way to developing better strategies for the adoption of disruptive technological innovations.