CHAPTER THREE

A MODEL FOR MANAGING INNOVATION

THE OLD MAN WAS READING his daily paper. It was the Philadelphia paper, and the news was unremarkable, though indeed, all manner of change was going on. The year was 1784. The old man was Benjamin Franklin.

The remarkable thing about this particular day was not the news in the paper, or even the paper itself, but the ease with which he read it. That morning, he had received a new pair of eyeglasses from his spectacle maker. His old ones had worked pretty well, but at age 77 he was no spring chicken, and the old eyes needed more help.

For some years, Franklin’s eyes, never strong, had been causing him trouble when he read a book or letter. He could see at a distance well enough with his old glasses, but they just didn’t do the job for reading. He had tried reading glasses but was always changing from one pair to the other, and he was prone to leave the extra pair all over town. He conceived the idea that it would be nice if he didn’t have to carry two pairs of glasses, but there seemed no alternative. After all, eyeglasses hadn’t changed very much since the Chinese developed magnifying lenses in the 10th century or since Roger Bacon first wrote of spectacles in 1268.

As always, undaunted, Franklin thought, “Why couldn’t spectacles have two different lens corrections for each eye?” Why couldn’t they be two pair of spectacles in one? It seemed reasonable to this supremely practical statesman. When his ideas on the subject finally solidified, he asked his spectacle maker to try constructing a pair of spectacles with two different lenses for each eye. The skeptical lens grinder patiently and politely listened to the renowned Mr. Franklin, finally agreeing to try constructing the new spectacles along Franklin’s design.

This morning he had them in hand, and they worked marvelously. Without giving the achievement second thought, he had invented the first pair of bifocals. It seemed like a logical solution to an obvious problem. Streetlights in the streets, a warm fire from the stove, a lightning rod on the roof providing protection from the storm, a new and independent country—and now a good pair of glasses. Not bad for an old printer.

To see the management of innovation clearly, we also need a little visual help. We need help to structure and organize our challenge in such a way as to handle it effectively. We don’t have Ben Franklin to help us clarify the management issues, but we do have a model that suits our needs very well, because we need more than a new pair of spectacles.

SEEING THE CHALLENGE CLEARLY

WHY DO WE need a model to manage innovation? Because the best way to achieve innovation is to understand how it functions, is directed, and is supported. A model helps us understand. It helps us to see the situation more clearly. It’s currently popular to exhort managers to promote and encourage creativity, individual performance, and innovation. The search for excellence, the high-performance individual, and the high-energy organization are familiar topics. There is nothing wrong with encouragement—in fact, we totally agree. But few sources approach the question of managing the innovative resource. Behavioral science has contributed immeasurably to our understanding of the factors encouraging and inhibiting organizational innovation. Again, however, the focus is usually not on the management of innovation. It is our intention to fill that gap. Thus, the challenge becomes one of structuring a workable approach to the management of innovation. All currently available models either proved inadequate for our purpose or are directed to entirely different behavior. We believe that our model offers much more potential for guiding our explorations into the successful management of innovation in organizations of varying size, complexity, and purpose.

THE INNOVATION MANAGEMENT MODEL

THE INNOVATION MANAGEMENT Model is shown in Figure 3-1. We will discuss each element of the model in detail and see how it is used to manage innovation and improve our performance.

First, some background. Our focus on systems led us to the work of Stafford Beer, who—in the United Kingdom—had begun applying the principles of systems thinking to the management of organizations.¹ Beer pioneered much of the original work in applying systems theory to the structuring of organizations and developed the Viable System Model. The Viable System Model is unique in its insight and power to explain the behavior of organizations of all kinds, but existing literature does not apply Beer’s model directly to the management of innovation. With some adaptation, however, we can benefit from the power of this device. Using the basic structure offered by Beer, we approach innovation from the viable system perspective.

First, we need to clarify what we mean by a “viable system.” Beer spent many years researching the necessary and sufficient conditions for a complex system (like a business or nonprofit organization) to be viable. The “viability” of the system is maintained by managing the various elements of the system together, keeping elements from interfering with each other, and looking to the future with the whole rather than just the parts in mind. A viable system is a solid foundation upon which to build.

Because innovation is vulnerable to so many organizational viruses, only a comprehensive and holistic view can provide the insight necessary to both engender and sustain innovation. The success of the Viable System Model in business, government, nonprofit, and nonorganizational applications over the past thirty years or so lends credibility to the application of the model to the management of innovation. Only such a panoramic view can offer much help. So let’s take a look at our Innovation Management Model and see how it works.

FIGURE 3-1.THE INNOVATION MANAGEMENT MODEL.

FOUR DIFFERENT SYSTEMS

THE INNOVATION MANAGEMENT Model, shown in Figure 3-1, consists of four levels or subsystems, each of which represents common and necessary elements of the model. The only requirement (and a necessary one) is that System I must produce something of value such that in its own right it could be a viable system. All the other systems (System II, System III, and System IV) exist only to support the teams and groups that make up System I. If System I does not create something of value to its marketplace or society, then there is no purpose for the others—and hence, by definition, no viable system.

Figure 3-2 shows what the four systems levels actually do.

SYSTEM I

System I represents the people who actually get stuff done: the product development teams, process development teams, and manufacturing teams. Some would call it operations, but certainly product development teams or process development teams would fall easily into System I. These are all the nonsupport activities, the line functions.

SYSTEM II

System II supports System I folks with shared resources. A product development team, for instance, is far from self-sufficient. It is an intense user of shared systems and resources—payroll, benefits, information services, PC repair, library resources, copyright services, and legal services, to name only a few. The efficient provision of System II services to System I units is one of the biggest challenges for all organizations. System II is “overhead” and proud of it. System II units make it possible for System I units to actually function in their assigned role. Understanding the relationship of System II to System I is a critical component in the management of innovation. System II is support.

When System II functions find themselves in competition with System I elements, something is obviously wrong. Yet, it is not inconceivable to envision a research department in conflict with a product development unit. Similarly, one may see the advertising and promotion department in competition with the sales department, rather than in direct support of its efforts. It is not unusual for support functions, in their efforts to standardize services and thus cut costs, to find themselves in conflict with their direct customers, the System I units. The Viable System Model clearly illustrates the folly of this type of conflict. It is analogous to a salesman picking a competitive argument with the customer. Certainly he cannot win without also losing. But in many organizations, this is precisely what one sees between System II units and System I clients. Such turf wars can be calamitous.

FIGURE 3-2.THE FOUR SYSTEMS LEVELS IN THE INNOVATION MANAGEMENT MODEL.

SYSTEM III

It is noteworthy that System III is the first place where we find management. To the extent that the system requires a command function, it resides here. System III provides operational direction, resolves conflicts, and allocates resources in cases where System II needs help or clarification. Functional and operational relationships in the system frequently require negotiation of issues like resource availability, priorities, and the like. Negotiation of issues is a function of System III. Compliance with prior agreements (goals, quotas, completion times, roles, profitability, etc.) is also a System III function. Management is, after all, accountable for performance of the various elements within its jurisdiction.

Similar to the compliance function, but not quite the same, is an audit function. It is up to System III to ensure that safety standards, quality control, security, copyrights, and the general state of the infrastructure are all maintained. (In Beer’s original iteration of the model, System IIIa is used to point out this adjunct function.)

SYSTEM IV

System IV may at first seem a little confusing. Isn’t creating the organizational environment for innovation—setting the values, policies, and long-term goals, for example—a management function also? Certainly it is. But it’s a broader, more encompassing challenge than those addressed in System III, which is distinctly operational. In very large organizations like General Electric, it is easier to see the differentiation. Jack Welch may spend most of his time on System IV issues, and it’s easier to rationalize because he has a small army of executives below him in that huge organization. In a smaller organization, we often find the two functions being performed by precisely the same executive team. In these cases, where management must clearly wear two hats, it’s even more important to differentiate between the different roles and responsibilities of System III work and System IV work. It is important, in our judgment, that System IV remain separate and be addressed separately. It is important enough to successful innovation that it clearly deserves its own category.

CLUSTERS OF INNOVATION ACTIVITY

SO THERE WE have the Innovation Management Model, but we haven’t yet said much about how it influences the actual management of innovation. We will, but first—because innovation occurs to our great advantage across the complete range of organizational activity—we need to divide these activities into several categories or clusters so we can discuss each. In Figure 3-3 we divide our activities into four activity clusters, each requiring management and each essential to the comprehensive understanding of innovation. The combination of the viable system with the activity clusters gives us a useful way to dissect and examine the management of innovation.

NURTURE AND BUILD

The first and most overreaching cluster shown in Figure 3-3 is that of providing a nurturing and hospitable environment for innovation. Roses won’t grow on concrete or in tap water. Innovation is at least as demanding and a lot more complex than growing roses. (Dedicated rose gardeners may disagree.) The organizational environment is a function of the policies and values held and reinforced by management itself. It might also be noted that these are the values and policies reinforced consistently by the actions of all, but particularly management. It is not limited to the values and policies printed somewhere in planning documents and policy manuals. Employees watch their leaders like eagles, observing their most minute actions and statements. It’s not what’s in the policy book that counts: It’s what the executives say and do that determines the behavior of others.

FIGURE 3-3.TYPICAL ACTIVITY CLUSTERS.

CREATE AND DEVELOP

The second cluster is the creation of the capacity for innovation—the capacity for the organization to meet its goals. We list several types of capacity by way of example, but there are certainly others critical to unique organizations. At the top of the list for every organization must be accurate and useful information about the client or customer. All organizations exist to serve someone, and that someone is always the client. The capacity to serve the client (and hence fulfill the purpose of the organization) is based immovably upon that understanding. It cannot be repeated too often for any of us.

Organizations known for innovative or creative performance invariably have created the capacity for recurrent innovation to happen. It’s an ongoing and ever-present necessity if consistent and useful innovation is to occur. Innovation is not a resource that can be turned on like a faucet when you need water. The water comes out only because someone is supporting the water delivery system at all times—someone is maintaining the pipes.

IMPLEMENT AND COMMERCIALIZE

The implementation cluster is one we’re all familiar with whatever our profession. It is the essence of what the organization does, the everyday blocking and tackling. The drive to reduce costs and increase productivity has done more to emphasize the gains to be made from operational innovation than probably any other single factor in the past fifty years. The results have been phenomenal and provide a critical driver for an economic boom period that was foreseen by almost no one. Managing innovation (or an innovation) all the way through the process can yield gains that can exceed all expectations.

EXPLOIT AND MANAGE

Exploitation of the innovation is probably a new category for some, but it’s not at all unusual for organizations to get so wound up in the first three exciting and urgent activity clusters that they forget to fully exploit what they’ve created! It would seem obvious that carefully reaping what you’ve sown would be only common sense, but many fail to enjoy all the benefits from their effort. Management gurus have popularized the fast-moving demands of today’s business environment and lavished praise on companies that replace a quarter of their products every couple of years or continually derive a large portion of their revenue from new products. Such examples do serve the useful purpose of punctuating the importance of continual progress, but can (presumably unintentionally) distract management from milking the cash cow that’s in the barn today. There’s room for innovation in the exploitation phase too.

COMBINING THE
MODEL WITH THE CLUSTERS

WE CAN NOW combine our adaptation of the Viable System Model with our activity clusters and see how it helps us manage innovation. If we bring the two together, we can make some useful observations. First, we can see that the involvement of the various participants in the system varies by system, time horizon, and activity. Figure 3-4 shows the involvement of each system.

As Figure 3-4 indicates, System IV is almost entirely focused on the future as it is the key purveyor of the organizational culture and work environment. System IV, in conjunction with System III, provides the critical elements of the capacity for innovation. Certainly the other systems interact with capacity development insofar as they improve their own education and the like, but the greatest part must come directly from Systems III and IV. Effective capacity for innovation is seldom if ever present in any organization where management is not consciously working to provide it.

As Figure 3-4 shows, System III, interestingly, maintains a constant role across the entire spectrum of activities. After all, that is the nature of operational management. System II, on the other hand, has little or nothing to do with creating the culture and environment for work. System II is certainly part of it and may support and contribute to it, but in no way can the support elements of an organization determine a culture that is contrary to that held by management. This is easiest to see in small businesses where it is obvious that the character of the owner is present in all aspects of the business. It is precisely the same in the large organization—it just may be a little harder to discern. System II may indeed have some impact on developing capacity for innovation, and the support role must continue throughout implementation and exploitation.

The activities of System I are biased toward the present. Some work teams are involved in future activities, at least in the sense of new products, services, or processes, but many more are working on the present, as Figure 3-4 shows.

FIGURE 3-4.THE INNOVATION MANAGEMENT MODEL COMBINED WITH THE ACTIVITY CLUSTERS.

USES OF THE MODEL

THE INNOVATION MANAGEMENT Model provides a useful view of the challenge of managing innovation. It provides us with a means of seeing and understanding what needs to be done and provides insight into how to go about it. The backyard gardener wishing to grow apples, for instance, can do so in a number of ways. The easiest way is to visit a garden center and purchase some apple trees, bring them home and plant them, sit back, and wait for the apples to appear. For some, this approach works. If they’re lucky and happen to have the right combination of soil, light, nutrients, etc. and aren’t plagued with disease or insects, the ripe, juicy apples appear in about four years.

For most, however, the exercise is more frustrating. One or more of the following situations generally occur:

•The tree dies unexplainably.

•The tree grows slowly and weakly.

•The tree produces no fruit.

•The tree produces fruit, but poor and small fruit.

•The tree grows better than planned and becomes too big for the allotted space.

•The tree produces fruit, but not the kind you expected.

The wise gardener who takes the time to understand a bit about apples will likely find the experience much more rewarding. It takes little time to learn enough to:

•Choose the best variety of apple and the right size root stock for the location.

•Understand the preferences of apple trees for light, moisture, and nutrients.

•Learn which two or three local pests that attack apples and how to control them.

•Be observant of the one or two diseases that may bother the tree in your area.

The process is not difficult, nor is it particularly time-consuming. Apples are pretty easy to grow in much of the United States and Canada, but the lack of a little knowledge can make it seem impossible. So it is also with innovation. Just about everybody knows it when they see it, but it can be infuriatingly elusive—all for the lack of a little knowledge. Using a model like the one proposed here can help enormously.

The model will be applied to numerous central aspects of managing innovation as we proceed, including:

•Creating the ideal environment for innovation

•Linking innovation to market opportunities

•Organizing for innovation

•Implementing innovations

•Exploiting innovations

•Supporting the innovative enterprise

With these observations and multiple dimensions, it’s now possible to view management of innovation as both reasonable and possible. But we still lack a focus, a context, and a purpose to direct the actions of our model.

THE CONTEXT FOR INNOVATION

ALL SYSTEMS NEED a purpose, clearly understood and widely accepted—otherwise, they disappear. In the case of innovation (both commercial and nonprofit), the purpose is to serve a client or customer—to directly or indirectly serve people. Innovation must support implementation of corporate strategies. As stated in Chapter 1, strategy matters, innovation matters, and management matters. All are ultimately focused on the customer. Whether we’re talking about a business, a government agency, or a nonprofit organization like the Salvation Army, there is an ultimate customer who is being served. For an organization to survive, much less prosper, there can be no other focus but the ultimate customer. Even governments are overthrown when they fail to serve their constituents.

SUMMARY

•The Innovation Management Model describes organizational functions in terms of how each is best performed.

•Senior management is primarily responsible for the future. Everyone else is primarily working in the present—on today’s work. The model thus implies who does what work.

•The other key element in the model is identification of four key activity clusters. Activity clusters describe what has to be done.

•The interaction of the what and the who/how provides us with an effective model for examining and managing innovation.

•The model operates effectively when applied with strong market focus.

NOTE

1. Stafford Beer, Diagnosing the System for Organizations (New York: John Wiley & Sons, 1995).