The Innovation Imperative

The Innovation Imperative

Innovation has been rightly referred to as a "wave of creation destruction".

Inevitably, traditional products, materials and production facilities will all become obsolete.

According to Professor Carl Pistorius, director of the Institute for Technological Innovation at the South African University of Pretoria, the inevitability of change means all companies should develop an innovation strategy.

An essential component is the ability to anticipate the technological future; another is deployment of structured mechanisms to assess technology-based threats and opportunities likely to affect the corporate bottom line.

"In [the] future, companies will to an increasing extent rise and fall on the ability of their managers to respond to these dynamics -- there will be no more excuses for becoming the victim of 'strategic technological surprise'," he says.

Sue Bushell spoke to Pistorius after his widely praised presentation "Managing the Dynamics of Technological Change: Assessing Technological Threats and Opportunities" at CIO Informat earlier this year.

Q: You referred in your talk to the Swiss watch industry. What are the messages there for IT?PISTORIUS: The Swiss were absolute masters at a technology, and particularly at fine mechanical skills. They had been at this for a couple of hundred years, absolutely acknowledged as the world's masters. They thought nobody could surpass them.

Then two technological innovations, one being quartz watches and the other one digital displays, turned the Swiss watch industry upside down. Quartz watches were in fact invented by the Swiss, but the benefits were appropriated by the Japanese, who then introduced quartz watches to the market and devastated the entire Swiss industry.

What we can learn from this is that the spoils don't go to whoever does the best invention, but whoever succeeds in appropriating the benefits from that.

The other thing is that irrespective of how good you are in a given technology, chances are that another technology -- a newer one -- is going to come along and substitute yours. This is known as a competence destroying innovation. Of course it presents a big threat to your industry.

Q: How can you make sure such threats don't prove devastating to your business?PISTORIUS: The first thing we have to do is to understand that the threat is going to be there. You can't wish it away. And the problem is that we know that industry-disrupting innovations almost as a rule come from another industry.

The problem of detecting an emerging technology that might be a threat to your business is a very complicated one, and you have to develop a really sophisticated scanning and monitoring scheme to be on the lookout for it.

Q: Where are the examples that show us that the threat often comes from another industry?PISTORIUS: One, as I just mentioned, is the Swiss watch industry. So if you are in the airline business -- say in Qantas -- you might think your biggest threat is going to come from another airline, like British Airways or South African Airways. And you might be watching them closely. But it might just be that the biggest threat comes from someone in the IT industry who develops videoconferencing to the point where people stop flying altogether.

Q: So these threats can come from way out of left field?PISTORIUS: These things can come from a completely different business. An example I used in the talk is that if you are in the petrol lawn mower business, your biggest threat doesn't necessarily come from the people in the electric lawn mover business. Instead it might come from a guy in the chemical industry developing a chemical that will stop grass from growing altogether.

If you do research in this area you find that most threats come from outside your industry, and that makes the detection problem very difficult.

Q: So very sophisticated scanning is one measure to take. What else can you do?PISTORIUS: The important thing is not to be complacent. Threats can come at any time and from anywhere. There are very few things in life that we know for certain but this is one of them: it is going to happen. It might take 300 years, in the case of the Swiss watch industry, or it can come overnight, but it is definitely going to come.

In South Africa we have another example in the mining industry, where the detonators for the mines for hundreds of years have been chemical detonators, and now they are under attack by electronic detonators. And that is making for a very interesting substitution battle.

The big thing is to be aware that these things can happen, and then to build in dynamic flexibility into your innovation strategy.

Q: You make a distinction between the management of technology and the management of innovation. What is it?PISTORIUS: This is one of the hottest topics in this field of innovation or technology management. One of the current lines of thinking is that technology is a resource, just as money or people or resources would be. In that sense, technology has to be managed as a resource.

Innovation on the other hand is a business process. It entails not only technology but also people management, finance management and so on. So innovation management has to do with the philosophy of inventing and reinventing both products and processes in the company and getting them to work out in the market. In which case technology would be one of the elements.

They are not the same. Technology management is one of the elements of innovation management.

You get many types of innovation. For example, we've talked about technological innovation. In a bank, you might get financial innovation, in which a product might be, say, a new checking account coupled to a savings account with a life policy. That is a financial innovation, but the same principle of innovation management would develop.

Q: Should both be managed by the same person?PISTORIUS: No, I don't think so. They can be, but not necessarily.

Q: What is best practice in this area?

PISTORIUS: Technology management as a discipline is really young. In the universities, it has only been in the last 20 or 25 years, I think, that you have found degree programs or education programs in technology management as a discipline.

Innovation management as a discipline is even younger than that and there is a lot of disagreement about what we actually mean by innovation, never mind innovation management. So the best practices are really difficult to describe.

I think from our viewpoint, one thing is that you have to take a formal and structured approach to it. It's not a serendipitous thing. So you have to really manage it in some way or at least take it seriously in that sense.

Q: I presume that means at the very least appointing somebody whose responsibility is innovation management?PISTORIUS: Exactly. You need somebody responsible for that. On the technology management side there is a lot of talk in the United States about having a CTO -- chief technology officer -- who would have some of the functions of the chief financial officer and so on. That is being accepted more and more, within United States companies. The position of innovation manager is very much more on the emergent side. A lot of companies probably do it in some sense or another, although we find that very few companies have formal innovation managers in place. But it is a trend that is picking up, and I think the more people realise that innovation management is becoming an essential business process, the more you will find it in a formal organisational structure.

Q: You talk about disruptive innovation. How would you define this and what are its implications for the technology side of the business?PISTORIUS: Disruptive innovation is often also called competence destroying innovation, in the sense that a company would over a very long period build certain competencies: whether these be skills or business practices or the types of people they hire. These are attuned to their business products and processes. Now when a competence destroying innovation comes along, it actually requires a new type of technology, for example, to produce this invention or new innovation. Then all of the skills the company invested in before -- the old technology -- actually becomes irrelevant overnight.

Q: So that creates all sorts of challenges?PISTORIUS: That creates a big problem, and we've had many examples of companies which failed or lost their industry leadership at least, because of strong cultures, in the sense that they have vested interests; the people who manage the company had their careers based on the old technology. When a new technology comes along, they keep pushing the old technology against their best judgement, even though they pay lip service to the new technology or do some defensive research and development in the new technology.

Strong cultures have resulted in a lot of companies going down, just as much as weak strategies have been.

Q: So there are victims of disruptive innovation, but just as clearly companies can become innovation winners as well?PISTORIUS: Definitely. This is why innovation is often called a wave of creative destruction. So as innovation comes along and creates new opportunities, new companies and new technologies, the flip side of the coin is that the old ones get destroyed in the process. There are many examples of this.

Q: So I imagine the biggest asset you can have is a flexibility -- an ability to duck and dive in response to market stimuli?PISTORIUS: Definitely. The most important thing is an understanding that there is such a thing as an innovation process, that it is not a haphazard thing. One of the core bodies of knowledge, if you will, in being able to understand, and being able to manage technological innovation is an understanding of the various dynamics of technological change.

They say the value of a principle lies in a number of things it explains. If you understand the dynamics of technological change then you can build on that body of knowledge to develop a lot of innovation strategies.

Q: How can people best achieve that understanding?PISTORIUS: In some sense it ties in to the management of innovation and the management of technology as being a new discipline. If we go to the dynamics of technological change we find that there are quite a number of dynamics that interact in some way or another. Industrial engineers have been using learning curves for a long while to plan manufacturing systems. The notion of an "S" curve has been used all over the shop, in social studies, anthropological studies, technology studies and so on.

Then there is this notion of a long wave, which claims that economic cycles in the world are 50 or 60 year cycles, and so on. These are all dynamics that are prevalent in a lot of areas and disciplines. We try to integrate them all on one page and apply a technology angle to that. Once you do that, it's like pieces of a jigsaw puzzle coming together, and all of a sudden you get a big picture of the entire dynamic -- a dynamic meaning how things change with time.

Because this is the essence of the problem, it is the way things change with time and the chance to manage them.

Q: So what are the strategic issues managers should be aware of?PISTORIUS: There are definite ways in which you can classify innovations. One is to make a distinction between product innovations and process innovations.

You would manage those differently. Another distinction is, for example, between radical innovations and incremental innovations. Radical innovations are when something completely new comes along and that would be, for example, jet engines replacing propeller engines in aircraft or microwave transmissions replacing copper cable in telecommunications. Or an air conditioner replacing a fan. Radical innovations usually rely on some scientific principle. Incremental innovation involves a lot of small changes. Each change in itself might not be significant, but the cumulative effect over a long time, obviously makes a difference.

Q: And I imagine that could be harder to manage in some ways than radical innovation?PISTORIUS: Yes indeed. One of the biggest mistakes one can make is to think that incremental innovations are second-class innovations to radical innovations. The radical ones are the ones that get the Nobel prizes. But in developing an innovation management strategy, you have to recognise that innovations are important and incremental innovations are just as important as radical innovations -- each one has its place and you have to know when to emphasise one and when to emphasise the other.

Q: You also talk about the "Defenders Paradox". What is that?PISTORIUS: This again relates back to the Swiss watch industry where companies become very strong in a technology and in a sense they become complacent. It has to do with the fact that even though they might detect a new emerging technology that might threaten them in some way or another, the inherent tendency [to maintain the status quo] is so strong that they will keep on investing in the old technology even with diminishing returns.

One of the problems is that even though they might decide to move into a new technology, they don't make the necessary organisational changes to accept that new technology. Very often we find that technological change and organisational changes go hand in hand. Some companies might make the technological changes, but not the required organisational changes. That relates to the culture -- the culture might be too strong to change, and that has led to some serious problems.

Q: So how can companies set themselves up so they can best anticipate the future?PISTORIUS: A lot depends on how you view the future. There is no one future.

There might be a spectrum of changes. The one thing that we do know is that the future will happen, and you have to develop a strategy that is robust enough so that you can handle any of these possible future scenarios. And it is possible to do your homework. It's not possible to predict the future with absolute certainty, but what we do say is that you can anticipate the future by looking for signals in various domains -- technological, social, political, legal or whatever. If you can interpret those signals in the right way, it will give you an indication of what is going to come.

There are very few new technologies that just burst out of the blue without anybody expecting them. I think probably the nuclear bomb in Japan is the only example where an innovation came and was totally unexpected. You can almost always read the signals by looking at academic papers, speeches of politicians, and so on and so forth.

So in retrospect the signals are there -- you just need to identify them and you can get the story of what is probably going to happen.

Q: If the CIO and the innovation manager aren't necessarily one and the same person, what is the role of the CIO in managing the dynamics of technological change?PISTORIUS: I think emergent technology in any company is an enabling technology in a sense that it enables the processes of that company. What we have found is that you have to have a balanced or a dual approach between technology push and market pull. On the one hand, you have to listen to what your internal and external customers want and try and implement that. On the other hand, you need to monitor and scout what is out there, and make your internal and external customers aware of what the new technologies are that they might not be aware of. Sketch for them the new possible applications that these technologies can bring about.

We have found that one of the tricks is to always have a balance between market pull and technology push.

The innovation manager and the CIO should interact in this mode as well. One should listen to the other, not only in terms of wants but also in terms of needs, and suggestions and so on.

I think the important thing is to realise just as the CIO is becoming a full member of the top management, so we should broaden this concept. Technology in general should be represented on the board. We need to hear the voice of technology in general on the board and by technology, perhaps we can say innovation process, on the board level. v

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