“Mention the word “innovation” and most people will think of extraordinary inventions created by solitary geniuses,” as mentioned in the first line of Ernst & Young‘s introduction to (one of) their innovation model(s). The article is titled: Innovation for Growth: a spiral approach to business model innovation. A promising introduction: it seems to include (organizational) growth theories, innovation management theory and business model theory. Again, after last year’s successful article on Deloitte’s Fast Growth Track, we’ll take a closer look on this model. Is this model theoretically justified? And if yes – assuming it’s an absolute yes – why does it work and how could it help you?
Business Model Innovation versus Innovation for Growth
First of all, let’s take a closer look at one of their general promises; on the one hand the article promises to innovate your business model. Or, as Henry Chesbrough has written it:
“There was a time, not so long ago, when ‘‘innovation’’ meant that companies needed to invest in extensive internal research laboratories, hire the most brilliant people they could find, and then wait patiently for novel products to emerge. Not anymore. The costs of creating, developing, and then shipping these novel products have risen tremendously (think of the cost of developing a new drug, or building a new semiconductor fabrication facility, or launching a new product into a crowded distribution channel). Worse, shortening product lives mean that even great technologies no longer can be relied upon to earn a satisfactory profit before they become commoditized. Today, innovation must include business models, rather than just technology and R&D.”
Source: Chesbrough (20o7): Business Model Innovation: it’s not just about technology anymore
So, the strategic focus of organizations has made a transition from product or service innovation towards business model innovation. That said, it surely doesn’t mean that service or product innovation is of less relevance: it has just shifted from a strategic level to a more tactical level. I got the opportunity ask (well, actually I’m filming, a colleague is asking the questions) Alexander Osterwalder about the place of innovation in the Business Model theory. This is what he said:
So the business model is not directly linked to innovation per se. Osterwalder:
“What it does is, it gives you a language. It’s very tangible, very visual, that will help you to create better conversations and it will make it easier for you to convince people of innovative possibilities.”
Concluding this part: it’s hard to focus on both Business Model Innovation and “Innovation for Growth”, because they are both executed at completely different levels.
Spiral Approach to Innovation: Innovation Processes
Well, so far the analysis of the title page. Let’s take a closer look at their PDF. I will include it here for your convenience:
[gview file=”http://www.ey.com/Publication/vwLUAssets/Growing_beyond_-_Innovation_report_2012/$FILE/Innovation-Report-2012_DIGI.pdf” height=”500px” width=”100%”]
I’ll directly skip to the folowing passage in the text:
“For the most innovative companies today, innovation isn’t a linear process. Rather, it’s a continuous cycle with ups and downs, inputs from different places, repetitions, failures, and many steps back and forth.”
Our guts feeling says that this statement is right. Indeed, it is. Innovation management is a process and many processes are theoretically seen as cycles.The origin of innovation studies lies within the product life cycle, firstly decribed by Lewitt in 1965 and later elaborated on by Perreault, for instance in 2000. It basically consists of four phases: market introduction, market growth, stability and decline. More focused on innovation, Rogers (1995) created a more specified model, ‘the diffusion of innovation and adopter categories.’
These models are singular, while innovation is repeatable. That can be shown by the following figure:
The art of innovation, the process of innovation, is often referred to as innovation management. Innovation Management, or New Business Development, aims to enhance the possibility of technical and commercial success of new products and services (Schilling and Hill, 1998, Brown and Eisenhardt, 1997, Robert, 1994 and Clark and Fujimoto, 1991). The article Fast Track Growth for Innovation shows more indepth information into the different steps of the innovation process.
Typically, each process is cyclic, in order to enhance the room for reflection and dynamical growth. Francis Bacon in 1620 wrote about this explaining that every scientific process should consist of hypothesis – experiment – evaluation. In 1982 Deming developed the Plan-Do-Check-Act cycle, which we all have heard of. Cole, in 2002, was the first who explicitly refered to innovation as a cycle: Probe – Test – Evaluate – Learn. Bacon gave his cycle the name ‘inductive approach’ – basically the same as a spiral approach.
The Model Magnified: Is it good or could it be better?
So, the circle as round: yes, innovation should be a spiral approach. Below a look on Ernst & Young’s inductive spiral approach:
Wow, that’s something, isn’t it? At least it’s all-inclusive. Let’s take start with the second cycle: “Innovation Process”
- Innovation Process: Ernst & Young have defined 5 steps: Intuition, Socialization, Ideation, Development and Exploitation. Clearly, it shows similarities with other – more theoretically accepted – models. The first two are quite surprising to me: Intuition and Socialization. The article explains: “Our research reveals a major shift in how leading companies go about innovation today. Intuition is the process of obtaining ideas, from anywhere and everywhere. Socialization happens when the idea is discussed and debated with other people, formally and informally.” I think this is a interesting perspective to look at the first step in innovation. On the one hand, it’s a modern way of looking at things: it’s fast and creates immediate action. It includes social media and people as a source for information and ideas, something that most models don’t include. On the other hand, it kind of simplified. Like (market) research and problem finding isn’t a scientific issue anymore, but more something that we come up by intuition. Perhaps intuition could play a small role, but it defintely isn’t how organizations repeatedly will structure innovation processes for the continuation of their core business. So yes, it’s a contemporary approach, but it’s not comprehensive.
Even more, the relations between the different steps are quite strange. They all go two ways, except from the last one (and: is it actually the last one?), between exploitation and intuition. A two way arrow is a rather unfortunate way of showing that the process is iterative, meaing things could happen simultaneously in time. It definitely isn’t a two way process: after (unsuccesfull) exploitation, it’s not very logical to go back to the development phase, because the source of the problem needs to be re-identified and a new idea has to be created before redeveloping the product or service.
- The other circles: to my opinion, the other circles try to include all exogene factors that could play a role in the primary innovation process. They are not cyclic at all and therefore it seems a forced way of including them in the model. It seems like a ‘sales pitch’ telling the clients all factors that could be taken into account during the advisory project. Perfectly plausible, but it should’t all be included in the model, because it doesn’t always make sense. For instance, the inner circle explain the different areas of innovation that could be addressed (processes, products and services and business model). Like explained before, these are three completely different strategic areas. Of course, they have to be addressed simultaneously, the influence each other, which explains their presence in this model. Also the outer circles don’t contribute to the value of the model. They are more seperate wheels (or clouds) around the model containing – very useful! – insights in innovation enablers and possible collaborators (read: possible clients).
- The boxes: they only seem to offer information that didn’t fit inside the wheels. Please be honest, would you have missed them if they weren’t there?
Summing up, I’m not very enthousiastic by the spiral approach towards business model innovation of Ernst & Young. It’s mostly a marketing instrument. Though a good one: it includes all expertises that Ernst & Young could probably help you with and is therefore a useful instrument for explaining how they could of help (and not how innovative business models could be (re)developed).
A New Spiral Approach towards Innovation
Of course, I will not only analyse the current model, I will also propose a better one. One that takes into account the five steps of the innovative process, but also the recent developments in innovation systems. And I left out all unnecessary information. This is what I get:
Obviously, when ‘walking’ through this innovation process, it’s not necessary to stay at one level and address each step for the same amount of time. It’s more often and iterative process than not, like the following figure shows:
Please, let me know what you think of this analysis. Am I right, or completely wrong?
I would like to end with a quote from Maria Pinelli, Ernst & Youngs Global Vice Chair, which I actually find one of the best quotes I have recently bumped into:
“It is not enough just to be innovative. It is essential to be innovative all the time.”