The abuse of innovation.

Innovation is a term which is widely abused and this abuse prevents us from seeing patterns in how business activities evolve.

It is difficult to see what changes when everything is called an innovation in the same manner that it's difficult to see the difference between commodification (assignment of economic value) vs commoditisation (shift from imperfect to perfect undifferentiated competition) because of the catch-all nature of the term commodification (i.e. it's used to mean both).

Take for example the utility provision of computing infrastructure (as per Amazon) - is it an innovation?

When it comes to computing infrastructure, the innovation of modern computing probably started with the Z3 in 1941. This act of innovation created an entirely new class of activity - computing infrastructure - which has evolved over time through various stages with custom built examples (LEO etc), products (IBM 650 and onwards) and eventually led to commodity and utility provision. For reference, the full cycle is innovation, custom built, product (with rental services) and commodity (with utility services).

Two things should be noted, firstly that the pathway of evolution is common for activities (and knowledge) though it's not a time based sequence. Secondly, the innovation of the Z3 created a new class of activity rather than evolved an existing class (as with the first phone, the first radio, the first ...)

When it comes to the shift from products to utility, this simply represents an evolution of an activity and not the creation of a new form i.e. infrastructure existed before Amazon. However, it is perfectly true to say that this evolution enables (through creative destruction) and accelerates (through componentisation) the innovation of higher order systems i.e. as infrastructure has evolved we've seen an explosion of innovation in big data, mash-ups etc. This is perfectly normal as commoditisation (the common term used to describe this evolution) creates a cycle with innovation.

So, we have a difference between innovation of a new activity and evolution of an existing activity - both of which we unfortunately call innovation.

To complicate matters there's also the consumer and provider perspective. Whilst electricity is a commodity provided through utility services to consumers, behind the interface (the plug) has been a world of innovation of novel activities (wind farms, solar power, geothermal etc) aiming to create some form of operational advantage. However, it is worth noting that this provider innovation doesn't suddenly turn a consumer commodity into an innovation.

Finally we have terms like sustaining and disruptive innovation. As an activity evolves, in many cases changes to the activity (such as feature differentiation in the product stage) are sustaining and occasionally they are disruptive.

When an activity evolves across a boundary i.e. shifts from products to utility services (as with cloud) then this shift is generally disruptive because the incumbents have huge inertia to the change caused by their past success in the previous stage of evolution (i.e. product or rental vendors).

So the pattern we have is :-

1. Innovation of a genuinely new activity which is distinct from the evolution it enables.
2. Evolution of an activity to custom-built, product (rental) to commodity (utility services). This process is commonly called commoditisation.
3. Sustaining changes dominating within domains (i.e. product)
4. Disruptive changes dominating between domains causing a discontinuity with the past (i.e. product to utility services)
5. Enablement and acceleration of the innovation of higher order systems through commoditisation of lower order subsystems (i.e. creative destruction and componentisation)
6. A difference between consumer and provider perspective.

Now, the problem with the abuse of the term innovation is we end up with :-

1. Breakthrough Innovation
2. Feature, Product and Service Innovation
3. Sustaining Innovation
4. Disruptive Innovation
5. Loads of Innovation (paradigm shift etc)
6. It's my product, of course it's an Innovation ...

We normally shorten this to Innovation, Innovation, Innovation, Innovation, Innovation and Innovation.

Or in other words Innovation.

You have no hope with spotting the pattern under such circumstances and it's no wonder that people get confused with this subject. This has severe impacts on management practices but that's a post for another day.

As for Amazon's EC2, it represents an evolution of an existing activity which is disruptive, will enable breakthrough innovation of higher order systems and for the provider has probably involved a mix of different types of innovative pursuits in operations.

I hate to give up on words, however "innovation" has become so widely abused as to be meaningless. For the future I'm tempted to use the word "Genesis" to describe the creation of a new activity and to put "innovation" in my book of pointless words along with "Cloud" etc.

Old yet new ...

I'm just comparing two of my talks, both on cloud computing and if anyone has time, I'd like some feedback.

The first is my recent talk from OSCON in 2009 covering "What is cloud computing and why IT matters", the second is my talk from OSCON in 2007 covering "Commoditisation of IT"

They both cover the same topic matter but with a different viewpoint (N.B. terms have changed since the 2007 talk but I'd like some feedback on style & content.)

Both are 15 minutes long but which was better and more importantly, why?

OSCON 2009: What is cloud computing and why IT matters

OSCON 2007: Commoditisation of IT

Capital...

Over the years, I've often discussed the ideas of physical and human (intellectual and social) capital within organisations. I thought I'd cover some old ground again.

Organisations simply exist between the intersection of a network of people and a mass of activities undertaken. Remove this and you're left with what an organisation really is, nothing bar any remaining residual capital.

The act of people interacting with activities creates several forms of capital, three of the most interesting are physical, intellectual and social. All of these forms of capital are susceptible to the ravages of commoditisation.

We've already experienced the effects of commoditisation on physical assets. For example, the news industry was once able to use physical assets (large and expensive printing machinery) to control the activity of publishing - not only what was published but whom. In days of past if you wanted to be a journalist your options were limited.

Today, the digitisation of content and the spread of the means of mass communication have changed the rules and commoditised this activity. The barriers to entry have been severely diminished and anyone can publish, This means news organisations have been forced to seek other means of differentiation, value and ultimately control.

Equally, many forms of intellectual capital has slowly been commoditised. Whereas in the past you needed direct access to a lawyer to help with the arcane knowledge of how to write a will, today you can download forms online.

All manner of knowledge has been neatly codified, commodified (given a value for access) and ultimately commoditised (become standardised, commonly available, relentlessly driven to a lower cost) through market forces.

Access to knowledge can (and has been) an important mechanism of control for some organisations. The commoditisation of such knowledge diminishes this means of control. As a journalist may find they are less dependent on a news company in order to publish, a budding lawyer may find it easier to access the knowledge they need without a law firm.

Obviously both types of organisations still provide the benefits created by the internal ecosystem of a network of people and a mass of different activities (i.e. rapid access to certain skills, specialists and supporting structures). However, both types of organisation will also have social capital - interactions, reputation and relationships with others.

Hence a journalist or lawyer my choose to work with one particular organisation because it can offer access to the right people, provides a prestigious network and has a high amount of social capital.

I mention this because many social network tools are currently busy codifying relationships between people. Furthermore, some are also trying to identify and provide measurable value in those networks (the act of commodification). Could this onslaught also lead to the commoditisation of business networks?

Will we see a future where we can buy and sell access to a social network? How will this impact organisations who depend upon their networks and use access as a means of control? Will companies also attempt to control and own this network more tightly?

These are just some of the questions I suspect we will be facing over the next few years.

*aaS time goes by ....

CloudCamp London was a blast, congratulations Alexis. This was my swan song on utility computing (I need to focus on printed electronics from now on), so I was really pleased to be given the opportunity to kick off the event with the first talk. The environment was excellent, the organisers had done a fabulous job and the audience were ruddy marvellous.

I did get the opportunity to ask the audience two questions at the end (prompted by none other than James Governor) to which I was surprised by the strength of response. Almost everyone agreed that:-

• portability and interoperability was important.
• proprietary technology and standards through committee wouldn't provide this.

Now if you are interested in the what is going on in the cloud, I'd urge you to keep tabs on Rich Miller and James Urquhart.

For me, the critical issue for the future in the cloud remains the formation of markets based upon portability and interoperability between providers offering common services. This is why open sourced standards matter, however keep an eye on James' as he will keep you on the straight and narrow.

Addition =========

That said, I couldn't resist this parting comment on Nick Carr's blog post.

Given that the "as as service" world is simply about the shift of ubiquitous activities from a product to a service based economy, then competition based on price and quality of service in marketplaces of common services with portability & interoperability between vendors seems logical. Unless of course you're a vendor for a common product who is not willing to accept a new reality. It's tough really, but that's the Red Queen for you, the constant need to adapt to the marketplace just in order to stand still.

Portability and interoperability between providers is necessary for all the usual user concerns of second sourcing - price competition, security and so forth. Shifting the mentality of product differentiation into a service world is not only counter to second sourcing, it makes little sense for something which is becoming ubiquitous and well defined.

The most logical route is for the entire service to be open sourced, encouraging the formation of markets and hence emergent standards.

We've been seeing some of that recently and interestingly at CloudCamp London, when asked, most participants thought that interoperability and portability between providers was important and that this wouldn't be achieved with proprietary technology and standards by committee.

So I have to agree with Chris on the importance of open source but this won't be an exclusive situation in much there same way that there will be niche product areas and there will also be plenty of new lucrative opportunities from the establishment of commodity markets in computing resources.

As for Ellison buying his way into the market as traditional revenues decline, it of course makes complete sense to maximize existing revenues that are being cannibalised. However, the rub here is the same with any disruptive innovation, the switch of consumers can quickly become a flood and not a trickle and many traditional players will be trying to shift into the new space when it does. Timing will be critical and there will be casualties from this shift.

Of course, as big as this change is, it is potentially small fry compared to the looming commoditisation of the manufacturing process itself through digital fabrication technologies. The combination of open source to hardware with digitisation of fabrication techniques and an approaching future of machines printing machines promises a whole new world of commoditisation, componentisation, accelerating innovation and ever more creative destruction.

But then, this has been going on for donkeys years.

Commoditisation & Commodification

I thought I'd just re-iterate the distinction between the above terms that was first identified by Douglas Rushkoff:-

• Commodification (mid to late 1970s, Word) is used to describe the process by which something which does not have an economic value is assigned a value and hence how market values can replace other social values. It describes a modification of relationships, formerly untainted by commerce, into commercial relationships.

• Commoditisation (early to mid 1990s, Neologism) is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition, from monopolistic to perfect competition.

These two processes don't just occur to physical things. For example, where knowledge or skill can be codified, as in written down in a manual, it will most likely become traded. This act commodifies such knowledge. Of course, the cost of reproduction of knowledge in a digital age is almost zero, so such knowledge tends to spread. It therefore becomes commoditised, even to the point of being given away freely in wikipedia.

Commoditisation applies to physical capital, human capital and even social capital.

Where do you think reputation based networks are going to lead if not towards the codification, commodification and subsequent commoditisation of social capital. Did anyone really believe that commoditisation of content would stop at news and somehow ignore film, music and other content based industries.

I more than understand the concerns of the "old guard", but I'm afraid that's change for you. The wandering minstrels, town criers and hot metal machinists of the past got used to it, and so will those who face the cold wind of change today.

Commoditisation effects all industries that are intensive in the form of capital that is being commoditised.

Of course, no-one likes this, hence the brouhaha we have in the IT industry about utility computing clouds. This is simply our industry following a well trodden path, as was predicted back in the 1970s. I say predicted because in reality it's just the same old pattern of commoditisation applied again. I covered many of these themes in my Future of Web Apps talk in 2007.

A short but long interlude

For the last few weeks I've been buried in research. So today, I thought I'd take a break and make a quick video about my areas of research. Unfortunately, I started with my previous talks and extended from there.

So my quick introduction rapidly turned into 600 slides and lasts over an hour.

Well, it's all very rough but then again it was supposed to be a break from my research. So I've posted the video here today.

What does it cover? All the usual from commoditisation to commodification, from innovation to organisation, from XaaS to agile development, from broadcast media to politics and from P2P to 3D printing.

Click To Play

Around and around ....

Mixing up my James'.

One is James McGovern and the other is James Governor of RedMonk.

Anyway .... in total I thought the James' had very good questions.

1 - McGovern. "When will we stand up and have enough courage to ask ourselves whether we should be pursuing SOA, BPM, ECM, CMMi, Six Sigma, IT outsourcing, Business Rules, ESB, etc strategies all at the same time?"

Well I happen to believe the issue is not that we are pursuing such strategies but whether we are pursuing them across a function or for the correct stage of an activity.

In July last year I blogged about commoditisation as a force for change, the cost / value relationship being broken in IT and how the main issue was that not all IT was the same. Over the last year I've come back several times to that theme of managing two polar opposites in focus and the transition from static to dynamic - however it was my exploration of the XaaS stack and discussions with Jenny Ambrozek that finally convinced me the issue was purely organisational.

2 - Governor. "don't we need to stop for a moment and consider the learning curve of both producers and consumers of our grand strategies?"

Yes, I believe we do (examples see the extended S-Curve and my talk at Web 2.0 Berlin.). The transition from idea to commodity and from source of competitive advantage to cost of doing business, not only affects the characteristics of any activity but also how it should be managed.

3 - Governor. "Could it be that Mcafee’s thesis, often used as a pushback against Carr, actually supports it?"

In May, I blogged about how the effects of open source and commoditsation drives innovation and causes more disruption and hence how McAfee's thesis support this. I see no reason to change that view.

These are three outstanding questions that the James' have raised, and they deserve serious attention. I've summarised my viewpoint before in my Web 2.0 Berlin and FOWA talks.

Those who know me, have heard me going on and on an on about commoditisation (from manufacturing to IT) for almost a decade ... I promise, once I've finished the book .... I'll change the record completely.

Howl at the moon ...

My first article "The sum of all fears" has been published in the Butler Group Review - it's a review of the underlying processes behind web 2.0. Obviously I'm delighted and hopefully my second article will also be out soon.

Anyway, I thought I'd take some time to write a little more about the book I'm writing on understanding your landscape, coherence and its origin. It all stems from conflicts which I'd noticed in the business world. Be lean and mean but yet be a great company to work for; be innovative and high speed but plan in detail; create value but focus on cost. Combine this with concerns over aligning to the business strategy and most organisations seem fairly schizophrenic (multiple changing and overriding personality types) or at least bipolar (mood swings between extremes).

Let's look at the business strategy first. Most business strategies to me are very noticeable for what they miss out rather than what they include. Any business is a mass of potential competitive advantage (CA), transitional and cost of doing business (CODB) activities. However most business strategies emphasise the differential, the competitive advantage whereas the cost of doing business is often diminished.

Now let's bring that skewed strategy down to the level of a function such as IT. As said before a function is a mass of connected activities (products and processes) with each activity at its own stage of its own S-Curve of evolution between idea and ubiquity, from novel and new to commonplace, from uncertain to certain, from undefined to defined, from dynamic to static and from barely repeatable to easily repeatable.

Most organisational functions seem completely unaware of what stage of evolution their activities are at, even assuming they are fully aware of what activities they do or what their users actually need in the first place. Most functions would have a hard time splitting their activities into potential CA / Transitional and CODB.

As any activity moves through its S-Curve then the characteristics of that activity change and the methodologies, culture, finance and governance needed to manage that activity change as well. Most organisations seem unaware of this and manage by function rather than by stage of evolution.

To this recipe for disorder we need to add the latest trends. For example outsourcing, a sensible option if you are outsourcing a commoditised and ubiquitous activity to an environment containing multiple providers and second sourcing options. A fairly hit and miss affair if you are outsourcing a function or parts of a function without any knowledge of the stages of the activities that it contains. In the latter case you are likely to be outsourcing innovative activities with appropriate skills and capabilities along with commoditised activities. The net result of this reduces any benefits from outsourcing and in some cases can actually weaken the organisation's position. There are similar problems when it comes to corporate innovation (all these ideas are wrapped up in the framework which I've spoken about at various conferences). These problems are solvable but you need to understand your own landscape and for some reason, which evades my attention, most seem to be actively ignoring it. To the cooking pot of confusion, now add a splash of skewed business plan and hey presto ....

You have a situation in which you have lots of activities (which you may or may not be fully aware of) that you are often trying to manage with the wrong methods (as you are unaware of stage and how to govern by stage) in order to fit in with a skewed business strategy (which ignores most of what you do and what your user might need) whilst dealing with a bewildering array of trends from the outside environment for which no-one ever seems to give you a straight answer (as neither you nor anyone else is in a position to say what the effect is on your organisation without knowing the above).

Each time I read that paragraph, I feel shudders of arrogance and a dreadful feeling that I'm getting it all wrong. There are lots of smart people out there, lots of good business schools, lots of great thinkers but I keep feeling like the kid pointing at the naked emperor or the villager shouting "he's the werewolf!"

Now, I've been poring through the history books and every time I have come across a company which has moved away from a functional organisational design to one based around the evolutionary stage of activity - it has had dramatic positive effects. Unfortunately, this move has always been coincidental to some other activity and organisations have tended to lapse back into a functional approach over time. The more I research I do, the more evidence I gather. I am now more convinced than ever that the issues surrounding corporate innovation, outsourcing, alignment with business strategy and a host of other conflicts are all primarily due to a monumental howler in organisational design.

Before you call me barking mad ... I've been called those words at various points over the last decade when I've talked about commoditisation of IT, commoditisation of manufacturing processes, spime scripts, 3D printing, competitive utility computing markets, biological manufacturing systems, dynamic vs static methodologies, patents vs innovations, utility computing and others. To quote myself (from The sum of all fears) :-

"Innovations are dynamic problems and require dynamic methodologies such as agile development and a more worth focused VC-like approach to financing. By contrast, the use of utility services requires a focus on cost, standards and static methodologies. Unless you intend to stop innovating and give up on the long term source of profit for any organisation, then the IT department must find a way to manage both of these extremes. As commoditisation is ongoing, you’ll also need to continuously deal with the transition between these two extremes." 

I have the advantage that I've lived and breathed in an organisation that was designed around these three different stages of evolution. In fact, I was the one who re-organised the company. However, I'm no werewolf and I'm no seer - I just like history books - and so what worked for me may not work for you. But there isn't one idea in the above list whose origin can't be traced back over thirty years ago and yet we keep on repeating the same old problems.

Finished ... just in time to start again

Just finished my latest article - phew. Which of course allows me to get back to writing my book, some consultancy work I need to finish and preparing my talks for 2008.

When I've finished my book I'll publish it under Creative Commons. However I thought I'd outline here where I'm going with it. Obviously as I'm writing it I do tend to refine things as I go along. It's all based upon the stuff I've been talking about over the years - so it probably won't be a surprise to anyone.

Coherence : an uncommon sense for a common sense world

Chapter 1 : Problem. An overview of the issues surrounding innovation, the growth of participation in many industries, managing by numbers, outsourcing and several paradoxes of modern economic life.

Chapter 2 : Definition. Sorting through the tangled mess of today means first getting some clear definitions of what terms actually mean. An idea is not a synonym for innovation and neither are synonymous with invention. Ubiquity is not a source of competitive advantage and commodification is not the same as commoditisation.

Chapter 3 : Example. Today, IT is under assault from a maelstrom of terms and concepts - from web 2.0 to enterprise 2.0, from utility computing to open standards, from XaaS to agile development. In this chapter we explore all these issues and characterise them according to our definitions.

Chapter 4 : Hypothesis. Our characterisation of IT points to an underlying framework, from invention to idea, from idea to innovation, from innovation to commodity. This framework describes how the characteristics of processes and products change during the transition from idea to commodity as well as the drivers for such transitions.

Chapter 5 : Concurrency. This framework is not peculiar to IT and examples of this can be seen in many industries from pharmaceuticals to music to finance. What was however specific to IT was the growth and profound impact of an 'open' meme. This meme has spread.

Chapter 6 : Prediction. Using the framework we predict a number of events for the future from the commoditisation of the manufacturing process, the growth of competitive utility markets and government regulation. We consider where this resurgent renaissance is heading.

Chapter 7 : Conflict. The framework provides an ordered overview on a bloody battlefield. We examine some of the generic conflicts of interest - Cost vs Worth, Dynamic vs Static, Emergent vs Declarative - as well as how allies can become bitter enemies - Patent vs Innovation. The largest conflict though is Organisation vs Innovation.

Chapter 8 : Organisation vs Innovation. One of the most startling aspects of the framework is that it shows a direct conflict between the common sense approach of modern organisation and the real world. Most firms are organised by function, however each function is a mass of different activities. The framework proposes that every activity has its own S-Curve of transition from idea to commodity, and that each function is nothing more than a mass of activities at different stages of their own extended S-Curves. This causes a conflict, as the ideal method of management changes with stage of activity and not with function. Management by function would appear to be the cause of the problems outlined in chapter 1 - from the difficulty in managing innovation to outsourcing. The chapter demonstrates a more effective approach to organisational structure based not on function but on stage of activity.

Chapter 9 : Coherence. Using the framework and structure, a range of generic strategies are outlined for dealing with the different characteristics of any organisational activity as it moves through various stage of the extended S-Curve. From innovation, to competitive advantage to cost of doing business. These strategies show how to manage the maelstrom of todays terminology and the issues surrounding innovation, outsourcing, participation and the economic paradoxes.

I'm looking for some more proof readers - so if you are interested, please contact me.

What terms mean ...

Wow, it's amazing how something as publicly spirited as wikipedia can be used as a sales tool. I was looking up some stuff and noticed term wars, blatant marketing by groups and some really snide attacks.

Anyway, as I still dabble in the XaaS world I checked out a couple of terms and thought I'd better get involved.

First, Infrastructure as a Service (IaaS) is defined exactly the same as Hardware as a Service (HaaS) except it was invented afterwards. I was late to the party having borrowed the HaaS term from other people, most likely Nick Carr. Looks like some were even later, I've made some corrections.

[Added: I know I shouldn't but I cannot help myself. The thing about IaaS is that not only is it identical in concept to HaaS, it was invented significantly later and differed by only one letter. It's a bit like me running around saying I've just invented:-

• The Vheel - a circular device that is capable of rotating on its axis, facilitating movement or transportation or performing labour in machines
• The Selephone - a telecommunications device which is used to transmit and receive sound.

You get the picture ... it's just plain silly.]

SaaS Platform - missed this one, it is what I call FaaS or Framework as a Service. I prefer FaaS only because I've probably pinched it from someone else and it fits nicely into the XaaS terminology (see the video below) by Scott Maxwell from April'06.

SaaSu is not a term worth repeating - it's far better to use the phrase "utility computing" and let the term SaaSu be forgotten ... quickly.

[Added : Whilst I dislike the term SaaSu and prefer the term "utility computing", I am speaking of the term rather than the company - SaaSu.com. I also note that they have made a call recently for simplification back to the SaaS term. Thank you Peter for pointing that out.]

Now, as for who invented the term Software as a Service (SaaS). Well Tim O'Reilly used the term in "The Open Source Paradigm Shift" in 2004 but it had been used before by many others. It's worth noting that "SaaS" was used by Amy Mizoras Konary in a 2004 IDC report.

However it was a common term well before then.

Hmmm, XaaS must be a hot topic otherwise you wouldn't need so many rewrites of history.

Web 2.0 Expo Berlin

I've uploaded a video of my Web 2.0 Expo Berlin talk below. Unfortunately there was no audio available, so I've had to record myself speaking in the hotel - doesn't seem quite the same without an audience.

I had a small but really pleasant crowd turn up - not surprising since I was up against some superstars from Google.

There is a lot of buzz about open social, I should check it out myself in more detail. I do hope it is as really open as it sounds.

FOWA - Video

Mel and Ryan from Future of Web Apps have sorted me out the audio, so I've uploaded the video below.

I'm going to be giving a re-run of the talk at a small event called TEN (a mix of Cambridge and London based geeks) organised by Rufus Evison and John Woods. It's in London on Wednesday 31st at 6pm at the Pitcher and Piano, 42 Kingsway, just near Holborn Tube. It's fairly informal and limited in size, but you're welcome to turn up - just ping us an email and I'll ask them to add you to the invite list.

I'll also cover some of themes which I'm going to explore at Web 2.0 Berlin.

Commodification Vs Commoditisation

I was asked recently why I talk about commoditisation (~ization, American English) when the "real" word is commodification.

Well, I happen to find the distinction useful and both words are still relatively new (created in my lifetime unless I'm mistaken) and both have some traction. That said commodification definitely seems to be winning the race and becoming the catch-all word.

Commodification (mid to late 1970s?) is used to describe the process by which something which does not have an economic value is assigned a value and hence how market values can replace other social values. It describes a modification of relationships, formerly untainted by commerce, into commercial relationships.

Commoditisation (early to mid 1990s?) is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition, from monopolistic to perfect competition.

The processes are very different, I happen to agree with Douglas Rushkoff on this one.