Saturday, April 19, 2008

More from less ...

In 1970, at its Palo Alto Research Centre, Xerox had arguably assembled one of the most creative groups of computer scientists the world has ever seen. This team created a computer system that most would consider to be more than a decade ahead of the rest of the industry. Email, laser printing, graphical user interface and a mouse. No-one else came close. Over 1500 of these computers were in active use within Xerox

So why doesn't Xerox own the computing industry today? As Steve Jobs famously described, they effectively “grabbed defeat from the greatest victory in the computer industry".

Whilst PARC played its role and brought the future to Xerox, the senior management of Xerox failed spectacularly to take advantage. The more I research into this subject, the more I discover that this is not an isolated incident. This phenomenon appears to be widespread. Whilst failure is an intrinsic part of the process of innovation, and that includes failing to act or implement an idea or take advantage of it, there are also many often unnecessary obstacles in its way.

Despite senior executives calling for more innovation, in most organisations it doesn’t seem to get an easy ride. Reasons for this include a lack of experience with radical innovation projects at senior levels, a growing mismatch between R&D productivity and cost, and a disparity between how long innovation takes and the immediate demands for ROIs. Added to this are common excuses used to stonewall innovation, from the ever faithful tyranny of current strategy (“it's not core”), to arbitrary financial hurdles (“it’s not worth our time”). Even if your innovation manages to navigate this minefield, it often receives the coup de grace from internal politics or simple fear.

As Machiavelli once said;

"the reformer has enemies in all those who profit by the old order".

Almost everyone who has ever tried to do anything innovative in a large organisation has at some point collided with the organisation as "super tanker" metaphor; we might have no idea what lies ahead but we certainly can’t (or more likely won’t) change course quickly.

I've become increasingly convinced that what CEOs should be crying out for is not more innovation but fewer self-imposed obstacles.

Now that is something they can fix.


Composing said...

I think Clayton Christensen's answer to the question : that the structure of the existing market tends to prevent incumbents "getting" the new innovation (ie. they can't sell it to their existing customers, who aren't asking for it) is a good one.

Undoubtedly a lot of potential commodity *aaS suppliers are not getting into it precisely because they're focussed on customers who don't want this yet. Disruptive innovations happen because a *new* customer base appears for the innovative technology.

I can imagine this whole dynamic playing out where existing enterprises all say "we can't go with hosted applications because there's no way we can trust their security". But a new breed of customer will appear with fewer hang-ups about security (they work more openly anyway) and take advantage of the hosted apps. In about ten years these new companies will be bigger and more valuable customers, the commodity application servers will have had ten years to demonstrate that their solutions are secure *enough*, and they'll be chasing todays incumbent enterprise software suppliers up the value stack towards the biggests and most valuable customers.

Inside existing incumbants it sucks to try to innovate, because you're fighting not just the internal politics but the whole *logic* of the organization you're in. It's better to get out and find a niche where the advantages of the innovation already *does* outweigh it's perceived inadequacies.

swardley said...

Hi Phil,

Excellent points and ones that I completely agree with. Your prediction for how the *aaS market will develop is highly plausible.

That said, I'm not convinced that organisations can't solve the innovation paradox which results in today's well organised structure being unable to "get" a new innovation. My research indicates that the problem seems to be in how we organise ourselves and how we attempt to apply simple control mechanisms to enable us to create order.

Some firms are however learning to balance the rigorous order needed to survive today, with the disorder needed to create a future. Page and Brin’s insistence that all engineers in Google have one day a week to work on their own pet projects is far from some form of employee gimmick but is at the heart of Google’s stratospheric rise.

Anyway, good comment, much appreciated.

Anonymous said...

As I recall one of the main problems with Xerox’s inability to take advantage of its own innovations was because their senior management were located in another part of the USA and they were unaware, or perhaps uninterested, in what PARC was working on. Jobs effectively used Apple’s position in the ‘Valley’ to scan in social groups for potential opportunities and gained inside knowledge which leaked out of Xerox’s research centre. Xerox at the time were great inventors but lousy innovators.

Staff on the shop floor, call centres, research centres, etc, generally have 100% of the knowledge and understanding of day to day problems, whereas the CEO only has 4% and this is where the breakdown occurs with senior management holding onto tactical decisions. Gary Hemel of Harvard, who interestingly brought us the idea of Core Competencies with his co-author Prahalad, is advocating a change in management approach to enable innovation. Here is a quote from his 2007 book The Future of Management (which I'm not promoting, I just think he is right):

"I think the most bruising contests in the new millenium won’t be fought along the lines that separate one competitor or business ecosystem from another, but will be fought along the lines that separate those who wish to preserve the privileges and power of the bureaucratic class from those who hope to build less structured and less tightly managed organizations. Richard Florida sees the same battle shaping up. In The Rise of the Creative Class, he puts it bluntly: “The biggest issue at stake in this emerging age is the ongoing tension between creativity and organization.” This is, perhaps, the most critical and intractable management trade-off of all, and therefore, the one most worthy of inspired innovation."

Pareto’s 80/20 theory springs to mind with 20% of today effort counting for 80% of the future results, however this 20% is so very hard to focus upon. It is a tricky balancing act for today's CEO's between the here, and now demands and the potential tomorrows innovations may bring. With the ever increasing pace of change and external economic factors I believe that today’s firms need to evolve to become more entrepreneurial and innovative or they will no longer exist, just as 95% of all species no long exist.

swardley said...

My understanding is that Jobs was invited into Xerox Parc by the management and I believe given technology in return for equity.

Xerox not only invented these concepts but put them into practice (hence innovated). It took someone else to turn those into successful businesses.

"hope to build less structured and less tightly managed organizations". There is an issue with innovation and organisational structure, which is what most of my research covers. It is a constant balancing act, and new techniques and tools are enabling us to find better ways of achieving this balance.

It is tempting to consider a future where organisations have no hierarchy or structure but are collaborative endeavours. Whilst this is valid for organisation with a cause and without intensive physical or human capital requirements, there is little evidence to suggest that such future financial organisations will be self sustaining. The idea of everyone as a their own company coming together to form virtual organisations is laissez faire economics driven to new heights of insanity. Such soulless virtual organisations will be slaughtered by any firm that embraces the concepts of society, belonging and passion to motivate and enthuse its foot soldiers.

The key to solving the innovation paradox of order and disorder is always a balance between the two.

"It is a tricky balancing act for today's CEOs" - it always has been. The difference today is that there are new techniques that enable us to find a more effective balance.

"I believe that today’s firms need to evolve to become more entrepreneurial and innovative or they will no longer exist" - this has always been the case, see Joseph Schumpeter and creative destruction.

Anonymous said...

Hi Simon, Thanks for replying to my blog comment, I want to highlight several points from our discussion. Since starting PARC in 1973 Xerox had freely given tours to show off their technology, however they became 'leery of outsiders' and stopped the tours (Lowwendmac). To counter this and access the facilities in 1979 Jobs allowed Xerox to invest $1m in Apple, which turned into $17.6m after Apple's float, in return for two tours only to view the technology (vectronic). The mission of PARC was to create the future without worrying about the commercial viability of the resulting technology with Xerox believing that PARC was only worth $40,000 (vectronic).

As an entrepreneur Jobs saw the profit opportunity of the PARC inventions. John Seely Brown (Alto Research Center USA) and Paul Duguid (University of California, Berkley) published a research paper in 2002 which explored the impact and criticality of local knowledge to innovation and referred to the research at PARC not travelling to the rest of the Xerox corporation but 'leaked' out locally to Apple, Adobe and 3Com.

The renowned Economist Randell G. Holcombe refers to Schumpeter’s (1934) distinction between invention and innovation in his Progress and Entrepreneurship article in 2003. Holcombe used Schumpeter's terminology to describe the inventions made at Xerox but the innovators were Steve Jobs at Apple and Bill Gates at Microsoft. The history of technology, particularly in IT, is littered with the best products being hijacked or outsold by inferior products.

What new technologies and tools are you referring too, which balanced innovation and organisational structure? I agree that organisational hierarchy or structure is needed because someone has to set a direction and take the responsibility to make the decisions no one else is prepared to make.

The balancing act of innovation for CEO's today is more visible than even before with globalisation affecting the western economies and the solution to maintaining GDP growth see as innovation, thus the heightened interest in innovation and the need for more and new techniques. Yes firms have always needed to be entrepreneurial and innovative but this is even more important today because of the rate of change occurring more rapidly with almost real-time interconnected connected financial markets and the global marketplace.

As you can probably tell I have done some research into Apple, which was used to produce an unpublished article on their approach to innovation and their future.

swardley said...

Hi Nick,

Thank you for the comment. I wasn't aware that Steve Jobs was only allowed to view the technology, that's interesting.

"The history of technology, particularly in IT, is littered with the best products being hijacked or outsold by inferior products."

Yes it is, but innovation has nothing to do with success. Innovation is simply the first[ish] attempt to put an idea into practice, as per the work of Professor Jan Fagerberg.

Xerox had 1500 of these machines in 1978, so they not only invented but innovated. According to your account this was prior to Jobs turning up. As I said it took "someone else to turn those into successful businesses".

I have not read Holcombe's paper, maybe you could send me a copy.

"Yes firms have always needed to be entrepreneurial and innovative but this is even more important today because of the rate of change occurring more rapidly"

The cause of this acceleration can be found in componentisation and the theory of hierarchy. Innovation and commoditisation are linked.

"What new technologies and tools are you referring too, which balanced innovation and organisational structure?"

Organisation can be both a necessity and a hindrance to innovation. For example, the order and structure of an organisation provides a platform of services on which an innovation can develop and grow. However, the desire to avoid failure in the battle for political survival and promotion in large organisations can weaken an organisations ability to change, to adapt and finally to innovate.

The job of the CEO is to manage this. It is a balancing act between the order needed to survive today and the disorder needed to innovate and survive tomorrow. This task is constantly changing as we learn new techniques to describe and understand the organisation, and new models to help improve how the organisation works.

Hope that helps.


Simon W