We are in the ‘cusp’ of a fundamental change that technology, platforms and connected ecosystems will bring into the mix for connecting and collaborating in dramatically different ways than in the past.

One of the implications will be our need in measuring the metrics within companies. The measurement of inputs, throughout and outputs need to become far more focused on delivering speed and scale potential as the critical points. We are far more needing to focus on the outcomes as our primary point of measurement.

This is a further post on discussing outcomes as the focal point of our innovation measurements, following my recent one of “Shifting to Ultimate Outcomes”

Recognizing the emergence of the outcome economy

The outcome economy which is emerging has many implications within it and how we measure and value these will become increasingly important. Companies will need better data to calculate costs, evaluate its potential value and will be modelling far more the risks and tracking the factors required to deliver within any outcome-based value promised.

To quote from a recent World Economic Forum report:

“In the outcome economy phase, companies will shift from competing through selling products and services, to competing on delivering measurable results important to the customer. This is a much more challenging prospect. Among other things, providers will require a deeper understanding of customer needs and contexts in which products and services will be used. Value based on output also entails quantifying results in real-time. Both of these requirements have been nearly insurmountable obstacles to scale – until now. It is the digital age that makes the outcome economy possible”.

There are a number of implications as we move from a ‘push’ into a ‘pull’ environment where results are measured by the customer as valuable to them. For example, pricing practices of a solutions end result will clearly change, based on sold performance, as will the emergence of more predictability modelling of delivering certain outcomes and their potential value.

We are becoming part of the connected world, comprising new market ecosystems and technology platforms that ‘look in’ and foresee, expect, and even predict new outcome results. This will require a far more dynamic environment, one that is responsive, agile, fluid and highly adaptive to meeting customer needs, in real-time.

Internally this is going to challenge organizations in significant ways. As we break down the present silo view of ‘our’ assets, bring into more into play a system of assets that we will evolve into a system of systems, this could fundamentally redefine businesses, the way they work, collaborate and utilize what is available to them and what needs to be ‘drawn in’ to get the job done.

We are facing an evolution from “solutions” to “outcomes”.

Our measurement system has been established on “value-added” principles or should have been at the very minimum. These have been based on “pushing out” the end result to customers, products and services offered in particular bundles of broad appeal.

Today we need to target and develop offerings that meet specific customers’ true needs. The customer has been evolving into a far more knowledgeable and increasingly sophisticated one, as they are closer to the end market, hold the relevant data and can determine and decipher changing patterns far quicker than those further back in the supply chain.

They have better visibility today. Often they feel they really don’t need the help of the salesperson, they have most of the means increasingly available to them, in a globally connected world, if they chose to exploit this.

The shift within suppliers of products and services is taking place, engaging even deeper with customers’ needs.

This focus to accelerate and determine their value to the customer needs to have a clearer understanding of their unique needs and then set about designing and delivering true solutions that meet these needs and are seen as highly valuable. Strategic relationships are increasingly important for maintaining ‘line of sight and value’ to the customer.

As we move far more to the art of selling outcomes, it will bring together sophisticated capabilities, based around technology. There will be an increased recognition of ecosystems that are seen as needing to combine for addressing customer strategic issues where higher value can be extracted.

These outcome-based approaches will be strategic, long-lasting partnerships where shared risk and reward become central to all parties. It changes the dynamics of relationships and offers radically different competitive advantages to shoot for.

The traits of outcome-based solutions

These will be very much custom based-solutions, they will be increasingly based on configurable solution- architecture. They will have clarity in “understanding the challenges and commitments to deliver specific outcomes on critical business needs”. They will be based on platforms that can design, deliver and operate the solutions.

This becomes more a customer partnering model, formed on a partner ecosystem strategy and clear solution architecture to allow it to flow. It will be designed for cross-organizational enablement, seeking – in real-time – customer intelligence to provide a better outcome.

The value for all involved is the opportunity to share in a greater value-creating solution that is based for on delivering the outcomes desired and needed.

How GE are switching their approach.

One outstanding example of how this outcome-based proposition is evolving, is by evaluating and reading about the GE Predix solution offering the software platform for the Industrial Internet through predictivity technologies covering health, extreme machines, lighting, aviation, oil & gas, transportation and energy.

They are building a platform for igniting the next industrial revolution and their white paper outlines this. This is not an easy sell, it has a significant time lag as many of the existing products already in the market are products that have less technology built-in them and have significant life spans to constrain this concept, but “predictive technology” has the potential in providing a real value-adding story into the GE selling story, where it may provide some changing competitor advantage if structured well.

This new industrial platform is here, we need to focus on outcomes.

With it has come the opportunity to make a broad-based change across the industrial world. The time to start is now and that requires a radical shift away from the past 20th-century measuring and metrics model into recognizing the significant shit to redirecting your business to outcome solutions.

Each person within your organization should be measured on outcome-based solutions, I’d junk all those income, throughput and output ones, these are holding you back if you want to release innovation. We are all in need of just focusing on outcome-based solutions, these are what customers want providing they deliver what they need to improve their business returns.

You certainly do “get what you measure” and that has a real challenge in today’s connected world where we need to collaborate, connect and share far more to achieve greater value-adding outcome-based solutions as the way forward to earn the trust of the customer by providing solutions they need but are also building better, lasting value into your product offerings.

The post The Connected Art of Selling Outcome-Based Solutions first appeared on Building Your Innovation & Ecosystem Intelligence.

From this writer’s point of view, their innovation activity gets caught up in plenty of unintended consequences, to put it mildly, in wasted debate, discussion & bad decisions through wrong measurement criteria.

Firstly, we are still locked in the old paradigm of thinking this is an industrial economy where we set about measuring inputs to innovation (R&D expenditure, capital investment) and then focused on the intermediate step of throughput and then outputs (publications, production units, patent filing, end products).

We also perceive innovation far too much still as an activity within just one company – viewed as linear, with considerations for services more of an afterthought (like ‘bolt-ons’). Production systems remain far too often the driving force of performance judgement.
Today, the world of innovation is completely different. We need a far more open set of resources (many outside our own company) to enable innovation.

The process has clearly been recognized as non-linear. The chase for more ‘real-time metrics reflects the shift to a knowledge-based network economy to accommodate growing uncertainties, the multiple choices and varying outcomes that innovation offers.

We need to move our measuring to ultimate successful outcomes

Recognizing the need to change our measurement culture

This shift means we have to push a whole lot more on challenging established measurements and metrics – question if they are still valuable or just ‘simply’ established and have never been questioned in a way to overhaul the whole process. Everywhere we look within innovation systems, there are significant legacies in place.

We need to do a better job at measuring knowledge flows – it is the increasing emphasis and use of technology that allows us to challenge the old measurement paradigms. We still love to count machinery use, transactions, production of widgets with an engrained efficiency mindset.

Sadly it is not as effective, nor relevant, to the world today. Actually, most of these are just statistics that don’t drive us forward; they constantly make us look back. It is not ‘forward accounting’ for the knowledge built to underlie new creation and valuing the way this is developed and diffused in the future.

This also brings to the surface the need to understand our intellectual capital. If you understand that, you have a better chance to be more innovative, inventive and creative as you move far more towards a learning environment focusing on the value of all the intangibles that generate knowledge or leverage through relationships, human engagement or dynamic structures that shape and respond.

Valuing our network relationships more.

The value of networks is still not accounted for as well as it should be within our measurements. We collect the number of connections, yet we fail to capture the knowledge generated by these interactions; they stay resident often just with the receiver, not captured within the organization’s brain to understand and put to better, more effective use, applying the multiplier effect.

Technology is rapidly changing this, and this collective knowledge and networking are being leveraged more, but is it really being measured as a vital metric that provides value?

The conditions to generate really insightful innovation often remains ‘hidden in plain sight:

• Are we matching context, aligning innovation activities closely to strategic company needs?
• Are we actively seeking to match expectations and capabilities to deliver on the innovation that will lead to new forms of company value?
• Are we searching for ‘intelligent’ indicators where those initiatives shift the ground and advance on previously intractable issues?
• Do we know the true dynamics within innovation, what is either static or just simply repetitive and needs more constant monitoring, more likely through technology than human involvement?

Today we are working through the impacts of the Industrial Internet (IoT)

This promises to be transformative; it will change the basis of competition and, through this, the basis of how we measure ourselves. Not only will the industries have their boundaries withdrawn, but there will also be a new wave of disruptive companies challenging the incumbent since they don’t suffer the legacies of the past.

Technology is driving the change:

• The world will improve its operational efficiency in dramatically different ways (time, asset-utilization) through more predictive maintenance and increasingly remote management.
• We will become far more comfortable with connected ecosystems, forming around software platforms that will break down and blur traditional industry and working boundaries.
• We will see increased collaboration between humans and machines, and even machines to machines, which will shift productivity into a new realm – which we need to understand to capitalise on the potential this offers.
• Lastly, we are rapidly moving to the outcomes economy, fuelled by software-driven services, innovation built into the hardware, and the increased visibility into products, processes, location, customers and partners.

It is in this last shift of outcomes that we need to build our measurements and metrics around.

We constantly move towards the era of outcome-based services.

Businesses will be forced to shift from measuring the inputs and outputs of products to outcome-based results, where a business competes on its ability to deliver measurable results to customers.

This delivery on outcomes will radically shift how we measure and reward our progress. It will call for significant levels of increased collaborations across a growing, ever-changing ecosystem of business partners, bringing together those involved to combine products and services with meeting customers’ needs.

Platforms and ecosystems will become far more commonplace to facilitate and capture the data, translate the pockets of knowledge, so these are shared, aggregated and exchanged across these growing ecosystems, where we are all increasing working to create and capture value for ourselves and contribute to others within the platform ecosystem.

Our participation in platforms is helping us to facilitate transactions, interactions and mobilization and increasing extending out to learning platforms, each of us looking to achieve a successful and ultimate new outcome that improves on the existing.

These shifts in the ways we form collaborations give us broader connected knowledge that creates different insights and eventually new business models. To achieve this, we are becoming increasingly reliant on the partnership network or relationship we form within different (chosen) ecosystems to learn, distribute and monetize these in new products and services that fit our needs, all occurring at unprecedented scale and speed to capitalize on opportunities and create a new competitive lock-in or contribution to our needs.

These are providing increasingly new products and services that meet customer needs based on the learning outcomes and exchanges.

Moving from outdated measuring criteria

How we embrace the daily changes means we must challenge much of the way we presently measure and manage innovation. Innovation can’t stay hidden behind closed doors, safe within a selected group or siloed off. We can’t keep working with outdated measuring systems that focus on inputs, throughput and outputs.

We need to shift to the greatest judgement criteria. Our measures and metrics all need to become outcome-based solutions as the only really measuring point. In successful outcomes, we come closer to solving the real needs, tackle the problems and opportunities you find in innovation as others measure success seen and judged on the outcome.

The ultimate outcome from innovation that understands the real customers need and then understood, constantly iterated, translating what we learn and building with increasing speed and scale towards the lasting solution – and we all get paid or rewarded far more on the value of the result from successful ultimate outcomes judged by focusing only on the result.

The post Shifting to Ultimate Outcomes first appeared on Building Your Innovation & Ecosystem Intelligence.

Our whole understanding of innovation is changing; we are evaluating and changing our existing focus from closed (internal orientation) into open (external orientation) thinking for accelerating and improving our innovation performances.

Regretfully we are not yet fully equipped to manage within these new innovation ecosystems. We need to give the factors an increasing focus and lead into a better emerging theory of leading or good practice.

Measuring innovation in different ways is becoming important

To start we are today measuring innovation more on the following aspects or should be:

1. Linkages– content and productivity of relationships, alliances, collaborations, interactions, networks, clusters and all the complementary aspects and assets deployed to do this
2. Knowledge engagement– the ability to attract knowledge into the organization, through greater content and value, through the people involved and the way we access, anchor and diffuse this new knowledge.
3. Intangible assets– the increased focus on providing improved climates and cultures to allow innovation to thrive and the struggle (still) between short term and long term payback. Increasingly people and the combination of the intellectual capital will be the central focal point of innovation capability building.
4. Conditions for innovation– the ability to sense and respond to shifts in markets, competition, and evaluate changing and variable demand as well as assess the impact of changing policies, global impact points, recognizing changing patterns, the effect of non-linear dynamics, understanding adoption/ diffusion rates and skill relevance are far more recognized.

These help build greater outward orientation and awareness for more open collaborative innovation to take hold.

Our pressing need is to review the Theory of the Firm to address the effects of Ecosystems.

In simplified terms, the theory of the firm aims to answer these questions:

1. Existence – why do firms emerge and how and why do they thrive or die
2. Boundaries – why is the boundary between firms and the market
3. Organization – why are firms structured in such a specific way, for example as to hierarchy or decentralization? What is the interplay of formal and informal relationships?
4. Heterogeneity of firm actions/performances – what drives different actions and performances of firms?

Theory of the firm is an analysis of the behaviour of companies that examine inputs, production methods, output and prices and today these are dramatically changing.

Firms are required to operate in ecosystems, often multiple ones and this begins to alter our older theories that fitted more in the 20th century but not in this changed 21^st century of globalization where speed, scale and scope increasingly play a more important part.

We need a new theory on the Organising Network of Firms with Ecosystems.

We are forming in many different ways significantly more relationships that matter to each organization, so as to deliver innovative products and services that would not be able to be delivered by only having the one organization attempting it, unless they are prepared to undertake the growing costs of more complexity.

Often this involves designing the architecture, platforms, construct new standards and be equipped to integrate and adapt different members of a community, who have something relevant to contribute.

Managing this growing form of complexity is challenging old theories, boundaries, organizations and how they exist going forward.

Ecosystem innovation is more today about managing beyond the immediate known’s found within one organizations limited focus of the world. The organization that envisages a changing world needs to often organize around ecosystems to seek and influence the broader effects of where they presently compete to bring about some kind of more substantial advantage or respond to survive. (an example is the Android ecosystem vs. Nokia’s race to catch up).

The race is to gain advantage and often try to dominate and influence the future direction a market will take.

Opening up our thinking towards ecosystems has a powerful effect

As we begin to open up our thinking to ecosystems these are having a powerful effect on our perspectives as different partners contribute to this often ‘emergent’ thinking.

This becomes more evolutionary and requires a completely different way to manage these ‘relationship contract’s that are forming around a given concept or platform.

They require increased interactions within the community and need far more tightly controlled activities to gain the synergies and effects from working within an ecosystem.

Relationship management needs to keep focusing on enhancing, driving innovation and knowing how to adapt this within the whole concept. No easy task.

Ecosystems that produce ultimately new business models often rest on a large capacity for agility within the participating organizations. Internal capabilities and competencies often get highly stretched by the new dynamics taking place, you need a strong orchestrator of the ecosystem to manage these challenges and many cultural biases that can blind a ‘line of sight’.

Aligning partners on a platform needs-basis is very different from aligning them to just one organizations needs. In the past we adapted to meet that specific requirement  of that one dominant organization as they controlled the process.

Today you can argue differently, why what you see as needed is not the best and maybe clearly different that first envisaged and it is better and evolutionary but demands more change and disruption both internally to manage it as well as how it is delivered to the end beneficary.

It allows for more breakthrough innovation, greater challenging of the existing status quo and often taking organizations out of their existing comfort zones.

Of critical importance is nurturing the health of the ecosystem.

There are three fundamental aspects that need to be considered

1. The value to each within the ecosystem. These values may be different but it is the recognition that the platform provided is the best possible way to deliver their individual part of the solution.
2. Critical mass of the parties within the ecosystem gives it that certain robustness. The combined effects in the ecosystem are greater than the efforts and sum of individual effect.
3. The successful ability to seek continuous performance and improvement by the way each learns. This equally achieves improved benefits and collaboration effects, so as to give the continuous upward push towards delivering a new innovation concept. This co-evolution or joint learning can lead to optimization effects, increased relevance and generating synergies unlikely without some creative friction along the way.

Ecosystems are evolutionary and do have ‘normal’ life cycles

For the health of the innovating ecosystem, you need to go through four stages

1. Birth– the buying into the initial concept, the pioneering and focus on the critical acquisition of key partners, market understanding iterations and the founding principles and roles each party is required to play and contribute
2. Expansion– as the ecosystem knowledge and activities expand you will need to have scale and scope built into the system. Standards need to be actively worked out , platforms established and robust, dedicated resources enabling and coordinating activity
3. Leading & Evolving– This could be possibly the ‘red queen effect’ that drive the evolution but you do need clear roles, that include network orchestrators and more than likely one dominant partner who manages the ecosystem. This party needs to ensure bargaining techniques, resolution management and an amazing set of skills not to throw something out that might have hidden value. One party needs to ‘mind the (open) commons and manage the IP across the ecosystem not to allow it to stop the collaboration. This type of leadership is going to be a rare, valued set of skill sets.
4. Self-renewal – it is the ability to deliver on the ideas otherwise the value of contributing to the ecosystem has no value. The ability to understand the potential for delivery is critical in any assessment as non-renewable ecosystems will not lead to ongoing evolution and may have very specific or limited advantage. Where ecosystems seem to work is where the goal usually has to be for a BHAG (big, hairy, audacious goal) that delivers clear differentiation and increases revenues multiple fold.

You must match your organization’s ability and access the fit within any innovation ecosystem.

Operating within an innovation ecosystem requires considerable evaluation. Does the synthesis of your new offering by working within the ecosystem federation combined with other organizations create a coherent customer solution that is more than likely going to disrupt the existing market?

Can you afford to participate or go it alone? Collaborations that have increased levels of complexity have often higher risk by managing within ecosystems.

You have to really assess that all the partners can deliver their parts and usually this is a complete unknown so you have to work through a set of tough strategic questions to get closer to the knowns.

These would include but not limited to:

1. How does your offering measure up as critical/ attractive within a ecosystem federation that will add value.
2. Knowing where you fit within the value chain. Do you have dependencies on others, can each satisfy their commitments on time, what resolutions/ warning system needs to be in place and getting a clear understanding of risk of failure by others within the ecosystem.
3. The higher the evolution for the final customer, the higher the delay in adoption as a risk so you have to be clear on the ‘returns’ and estimated timing to manage your expectations.
4. The more partners within the ecosystem the more complexity and risk. The dominant party needs to provide some compelling arguments on vision, potential effects and understanding of the changes caused in competitive dynamics by joining.
5. Answer the basis questions of when, why, how, where can we compete within any federation of parties. You need to pace your resources to match the process (see below)
6. Maybe you can reduce your involvement (and risk exposure) by becoming a sub-eco-system provider to support others within the platform.

Just remember this as a summing up.

In ecosystems, this remains a key insight “The dynamics of the system will be dominated by the slow components, with the rapid components simply following along.” “Slow constrains quick, slow controls quick”. 

To manage ecosystems is hard, it is an adaptive system.

Think carefully through any move to join innovation ecosystems, they do have potentially a high, immensely attractive return, if managed well, they are nearly always disruptive to the existing markets and highly valuable to the participants.

There also is a big ‘but’ as the pathway to get to that ‘success point’ is full of potential risk and immense ‘spent’ energy.

Think this carefully through. Hence we need far more theory and informative discussions on innovation within ecosystem federations to help us all form around (or not) new structures for innovation.

The post The forming of new structures- the business innovation ecosystem first appeared on Building Your Innovation & Ecosystem Intelligence.