I recently wrote in a blog (http://bit.ly/mXZjC3 ) called ‘the Risks of Dampening down Innovation Productivity” that with contracting economic performance, innovation performance suffers as well.

I’d like to look at a few of the hidden or even darker sides to this, not because it is simply a Monday blues sort of thing, but there are growing implications if we don’t clarify why ongoing innovation investment is really needed and what it can often cost on society.

The tough economic times we are presently facing

We are faced with some tough times; markets are contracting, business performance is struggling to maintain its previous levels, there is increasing argument we are heading for a double-dip recession, although I feel we are already in this. Jobs are tough to hold onto and even harder to find.
Presently economic policy is driven by the need to hang on to what we have got. Is this the right approach?  Does this really deliver a growth strategy that generates new jobs or simply try to hold onto the ones we have?

Many people feel the later and anyone in a job that feels vulnerable or concerned for their immediate future, welcomes any economic stimulus that helps protect them.

The concern though is the ill wind we all feel, blowing in from the east and its global competition effect requires us to become more productive to compete. We can’t stagnate. We can’t simply tread water.

We need a clear set of growth strategies not just stimulation packages

For a growth strategy, needed for attracting new jobs it is going to be tougher, far more politically unattractive. Many of the bigger organizations recognized within our economies are already part way into a risk-adverse approach, not really experimenting or pushing aggressively for new growth opportunities that involve higher than normal investments.

Talking around a number of different issues and opportunties recently with Drew Marshall of Primed Associates (http://thinkprimed.com), he further confirmed that it seems ‘Scarcity’ has become something of a touchstone conversation with organizations recently; even those sitting on large capital reserves are framing all their innovation efforts in this context.

Large ‘chunks’ of the economic stimulus being announced in different countries presently will go into these organizations, to further strengthen their balance sheets but to create new jobs is more questionable. Scarcity can be viewed in many ways- of markets, of opportunities, of qualified people, of fresh capital, informal panic, reacting to worrying news by reducing activities.

There is a strong argument for a more dynamic growth distribution.
Innovation calls for strong experimentation, for investment, for seeking out new bolder opportunities. If we lose this real investment appetite for innovation, we lose our business dynamism and productivity growth.

Economies become increasingly ‘static’, the organizations that were inefficient either have to change their ways to expand their current capabilities, or shrink and exit.

It is the increased competitive pressures of a ‘stalled’ economy in the West, increased global competition that will create this further disruption.  If everyone hangs-in and settles for a shrinking share of the markets we simply lower the productivity growth as investments get cut back, saving are sought out and then offers of economic stimulus support are gratefully taken to help in this.

All of this ‘negative’ activity creates longer term prosperity problems. We ‘play’ into someone else’s’ hands who are making appropriate investment and we simply can’t afford to do that.

Creative destruction comes in many different forms

• Policies that support ‘selective’ industrial policies skews existing producers interests even more and often at the expense of the consumer. In a global economy others that are better equipped, more modern, more efficient can make a more competitive offer.
• If your selections for support are really subsidised favours you often don’t improve the competitive climate, only ‘healthy’ competition really does that. If you don’t invest in advancement and keep active in offering consumers improvements (not necessarily lower prices) you lose market share…..eventually. Others see these times as opportunities and invest appropriately.
• Ploughing increased investment in R&D also has a very limited short term effect. The horizons from research are longer in distance than the immediate need. By offering for example economic credits to R&D has value in the longer term but less for immediate impact.
• It is the value of deepening the intangible capital that need the focus but ‘stimulus packages’ don’t target the specifics just often the generalities.
• When we invest and support a number of our less than dynamic industries we are passing up the chance to invest in the future. New high growth firms account for a disproportionate share of job creation and can have up to a 2.5 multiplier effect over three years.
• Of course these firms are contributing small economic share to the economy but are the very seeds of our future. We need to accelerate the entrepreneurial climate, not hold it back by starving it of capital or its share of any stimulus package. Policies tend to favour the ‘mature’ not the young at heart.
• The more we can support organizations willing to invest in innovation activity, the more the uneconomical ones in the same industry shrink, this adds growth and new economic activity that is a much healthier position. This enables organizations to withstand and re-equip for this increased growing global competition but this does comes at a price of disruption.
• We need a greater ‘selective’ survival of the fittest otherwise we prelong the organizations that actually create a drag on the industry they operate within. We do need real Darwin-ism here not prelonging inefficiencies.
• As increasingly more calls will be made for deeper structural reform and reducing barriers to trade even further, you will get growth but at a cost, the cost of destruction of many of the existing organizations. Greater disruption and increased uncertainty.
• This has its ‘knock-on’ effects, the ones that become even more politically unpalatable; the shifting job market where people and their families get uprooted, in search of a new job.
• Society is facing a tough set of challenges- if organizations do not innovate, create new growth, new products and compete effectively we fail to get what some call ‘creative destruction’.
• It is the need for rapid diffusion of new technologies, new methods and designs that facilitates ‘creative destruction’ as it equips those that invest with the ‘capital’ to compete better.
• Livelihoods, established communities, institutions and economic security all get caught up in these tough decisions that have an inevitable occurance for many, at some time.
• Seeing destruction is extremely hard when it has these very personal impacts on our lives and politicians often get caught in the middle.

Subsidies, tax credits and lower taxes it is argued never quite generate the solutions promised.

There can be both ‘productive’ and unproductive churn taking place.

The need of any crafting of policy in times like these, is to look well beyond the ‘knee-jerk’ effect, we need to have clear job creating purpose underlying economic stimulus. Innovation needs to be clear, is it the means to economic ends?

More jobs, better jobs, greater productivity. The answer is yes but the real-world trade-offs do have higher destruction than we often want.

Sometimes innovation in the short term is neither giving us societal or economic good.  I recall recently an article by Michael Schrage where he suggests innovation has a “perverse and unpredictable impact on nations and employment.” He points out “innovation comes with risk and costs attached.” Innovation ensures creative destruction.

We seemingly need innovation in all its different forms and we need to continue to invest in it, otherwise we reap the cost for even more destruction. We are facing much uncertainty as we see these job losses continue from many less than ideal organizations simply shedding to survive.

It is through appropriate investment in innovation productivity we can see the rise and potential for growth. We are travelling down a hard road at present with social and political costs.

Managing innovation investment correctly today is critical but it has to be continued, even with all the disruptions it provokes.

As Michael Schrage poses in his conclusion in his article “what kind of growing economy do we want to have?”

We sometimes pay a high price for innovation.

The post Seeking Innovation Productivity through Creative Destruction. first appeared on Building Your Innovation & Ecosystem Intelligence.

In the developed world we are consistently over-delivering innovation for many and there is a given cost to that, which we all pay for even though we often don’t really need it in the first place.

Take, for example, the software provided by Microsoft for its windows application, in its office versions, they all are over-specified for our personal needs.

The majority of these ‘sit’ on our computers taking up space and never used. This continued requirement which we are forced to constantly upgrade requires us to seek more computing power yet it is really inappropriate for most people’s needs.

Perhaps with cloud computing, we can see more ‘stripped down’ versions from Microsoft in the future that reduce the initial purchase price, give us a basic kit to work within and through the use of cloud computing as and when we need additional software, we can go and download it by paying an ‘appropriate’ fee to either use it as a one off or to download it onto our computer.

We achieve less clutter on our computer, faster start up and performance times, latest applications and a better way to manage our personal needs in a constantly tailored way, appropriate innovation.

Appropriate innovation is possible to be applied increasingly on many products and services with a different thinking of product or service final delivery. It is actually going on in many ways today but it has not been perhaps focused upon enough, in a way that leads to a transformation to meet the times we live in.

These need to be more thrifty, tapping into a market need of more inexpensive alternatives that deliver to people the appropriateness at the involvement level they want or can afford to get the job done .

The internet can play an increasing part in this as it can allow us to tap into what we need when we need it. What needs to happen is this philosophy of appropriateness needs to be adopted by more firms and this ‘mind shift’ might lead to significant growth, adjusting there ability to deliver over specified solutions into ones that simply do the job.

Keeping it simple is a present problem we need to tackle in developed countries, not just developing countries. We need to draw more people into usage, but avoiding additional unnecessary functions so scaling out of fit for the work, enables growing markets, extracting greater potential and achieving deeper market penetration.

Appropriate Innovation is not new, in actually comes in a number of well-articulated guises already.

Clayton Christensen outlines his thoughts on disruptive innovation and he has written extensively about this approach. He argues by doing a clear jobs-to-be-done analysis you can spot market opportunities, not just for segments of under-served but those that are over- served that are ripe for disruption and new products or services that meet that ‘sweet spot’.

We tend to see this more for developing countries but increasingly I would argue we need to apply this thinking to developed markets that are presently bogged down with little growth and market stimulus.

The second aspect of appropriateness has been discussed by Vijay Govindarajan as reverse innovation. He points out the rise from globalization, that organizations are applying reverse innovation by taking products and services developed specifically for the developing world that can become the new oxygen for future growth globally.

He argues “many western multinationals with all their resources, technical superiority, and established global presence are being beaten to the punch. In the developing world, local competitors are often at the forefront of economic expansion.

They are very different organizations in very different places, in very different industries. yet all are leaving established multinationals in their wakes- not just in emerging markets but also in developed markets.”

He states “that the biggest opportunity for multinationals in the next 25 years is to focus on the vast segment of unserved and underserved in poor countries.” Reverse innovation is not only required to capture growth in emerging markets; it will fuel future growth of multinationals in their home markets. It does this through a more appropriate innovation approach, aligning clear, specific needs and tailoring products and services to meet those.

VG defines reverse innovation as very simply, any innovation likely to be adopted first in the developing world whereas a  disruptive innovation has a particular dynamic that endangers incumbents but both have ‘appropriateness’ to meeting need.

Recently the consulting company, A D Little, was discussing the future of innovation management and within one of its five concepts to watch it introduced frugal innovation.

It sees new segments, new needs emerging that require a more radical new low cost. This frugality and affordability will alter the mindset of many.

Present societies regarded as affluent will need to adapt and reduce down on their current expectations and fit their circumstances accordingly with ‘appropriate’ innovation that serves their specific needs.

Frugal innovation can be interchanged a lot with reverse innovation. Frugal innovation brings about a rethinking of the nature of innovation. Instead of “more” it is often striving for “less”, using clever technology to create greater simplification with a huge potential across many fields of product and service to allow society and individuals greater engagement at an appropriate cost.

There is a huge potential in considering these three concepts

If you take an argument of VG’s that there are three primary situations of 1) income gaps, 2) infrastructure gaps and 3) sustainability gaps and seeing we are increasingly suffering from these in the developed world as well as the developing world, they can really offer rich opportunities to view innovation through new lenses of appropriateness

All three concepts match to appropriate innovation- matching appropriate needs and innovations and aligning them to give a real growth potential.

Barriers and resistance

For all three concepts, there is a real need to change the existing mindsets. You must overcome resistance to shifting power and control away from headquarters, from a selected few and they must be willing to reshape the organizational models to be a more flexible.

You must overcome the initial resistance to prioritizing an investment that does not initially seemingly serve what you think are the interests of your mainstream customers.

Each can cannibalise on existing concepts and this is a tough path to travel and break out but there is, even more, a pressing need to ‘go where the growth is’.

Appropriate Innovation is a real way forward to growing business.

The organizations that learn to shift towards “bottom-up” innovation could provide the impetus needed to develop successful innovation-for-development strategies that meet appropriate customer needs. This is the approach to start.

People are often impatient; they don’t want to wait for solutions that are not appropriate they are seeking ones that fit their pocket, fit their needs.

To discover these untapped new markets although it is not so clear cut initially is to perform a very precise jobs-to-be-done market analysis to discover these underserved needs.

To meet this need we should create a culture of inventing more convenient, lower-cost, appropriately specified, perhaps more on-demand products and services. In this way, we can attract a larger population to tap into a greater market potential for appropriate services and products/.

There are plenty of people who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price but where there is still going to be a reasonable margin for the providers.

There are increasing ways to deliver ‘stripped down’ versions of nearly everything.

We just need to learn what is appropriate, move to greater simplicity and deliver appropriate innovation to meet given needs.

The post Appropriate Innovation Makes Good Sense. first appeared on Building Your Innovation & Ecosystem Intelligence.