On more than one occasion, I’ve heard IBM executives assert:

The nature of innovation has changed. In the 21st century, innovation is open, collaborative, multidisciplinary and global.

The ideas of open, collaborative, multidisciplinary and global appeared in the Global Innovation Outlook 2.0 report that was published in mid-2006. These words appeared on IBM-internal slides presented by Nick Donofrio at an Consulting Leadership Exchange in September 2005, and at the external-facing conference on Education for the 21st Century in October 2006 … with lots of other occasions in between. But what do these four words mean?

To make some sense for myself, I’ve extended these words into phrases and contrasted their contexts in a table .

I’ve been listening to audio recordings of Donofrio in conversation, as well as following Irving Wladawsky-Berger’s blog. While I believe that my reasoning is consistent with theirs, this is not something they’ve endorsed. When I present the right column to audiences, I generally see nods in agreement. At the same time, the implications of a contrasting left column on current business practices provokes some deeper reflections. Let me unpack each of the four points.

Strategy as private versus open

Strategy as private development enables autonomous control over designs, i.e. product designs, service designs, business designs.

Private development enables a business to leapfrog competitors, by taking independent action on opportunities it sees. The entrepreneur invests in research and development of products, leading to economic profits for the “visible hand”. In this mode, a company such as Apple can position itself as an innovator designing “cool” products, rather than attempting to bring a kludge “designed by a committee” to market.

Others may not see the opportunity, or similarly wish to take on such risk. First-mover advantages may accrue to those who read Clausewitz: “The backbone of surprise is fusing speed with secrecy”. Futhermore, current customers may not be interested in discontinuous changes in offerings (e.g. Clayton Christensen‘s disruptive innovation), so an advance may require a leap of faith.

I prefer the term private over closed – systems theory finds few natural systems that really are closed — but Henry Chesbrough provides a practical contrast that reflects strategy in the style of the left column.

Closed Innovation … is a view that says successful innovation requires control. Companies must generate their own ideas and then develop them, build them, market them, distribute them, service them, finance them, and support them on their own. This paradigm counsels firms to be strongly self-reliant, because one cannot be sure of the quality, availability, and capability of others’ ideas: “If you want something done right, you’ve got to do it yourself.” [2003, p. xx]

Compatible with strategy in the style of the right column, Chesbrough describes the open counterpart.

Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology. Open Innovation combines internal and external ideas into architectures and systems whose requirements are defined by a business model. The business model utilizes both external and internal ideas to create value, while defining internal mechanisms to claim some portion of that value. Open Innovation assumes that internal ideas can also be taken to market through external channels, outside the current businesses of the firm, to generate additional value. [2003, pp. xxiv]

Donofrio takes a slightly different spin on open, with a relationship to standards.

[Donofrio] …you have to think about the openness of the idea, because usually the openness is what’s going to make the innovative idea move faster.

… all industries have standards. It’s pretty true that when the standards were in place and adhered to, things moved faster. Because then people spent their time investing in real value, above the standard … as opposed to arguing over: do it the right way, do it the left way, do the front way, do it the back way. [2006, audio at about 1:30]

From the above, I’ve constructed open to mean “strategy as open standards leveraging expedient platforms for advancing designs”. From the dictionary, take expedient to mean “useful as opposed to right or just; advisable on practical rather than moral grounds”. In business, viewed from the writings of Jane Jacobs, the moral grounds tend to follow a commercial syndrome (i.e. everything is negotiable) rather than guardian syndrome (i.e. absolute right and wrong).

Relationship as transactional versus collaborative

Relationship as transactional production chains linked by inter-organizational contracting combines the theory of the firm with ideas on division of labour.

Neoclassical economic theories of the firm (e.g. Coase, Williamson) and entrepreneurism (e.g. Schumpeter) center on transaction costs. Free markets are presumed to be the dominant structures for economic exchange, with hierarchies — business organizations — as the alternative in cases of market failures. These ideas are loosely related to Adam Smith’s ideas of division of labour, where efficiencies can be achieved by a series of independent actions, i.e. one task hands off to another.

Clean handoffs are not necessarily the case in collaboration, though. The idea of producer-product is different from that of coproduction. Innovation often requires investments by leading organizations in different business segments to bring their competencies to bear in collaboration. While it’s possible for a business to go it alone to reinvent the wheel, there’s are opportunities for collaborative alliances coproducing accelerated learning, as dead ends and unproductive activity is minimized. Speed is important for value capture in innovations.

Collaboration has traditionally involved face-to-face interaction, but the advent of the Internet has accelerated IT-based collaboration. Individual-to-individual communications are now extended with many-to-many interactions in a wiki style. It’s often initially unclear who owns what and how efforts can be monetized, but progress can be accelerated with the looser structure. Adapting the architecture of information systems to be service-oriented enables repurposing content in ways initially unforeseen.

Method as analytical versus multidisciplinary

This distinction on methods is derived from Lester and Piore’s contrasts between the processes of analysis and interpretation.

The central insight to emerge … is that the most important capability … of any advanced economy … its ability to generate a stream of new products, to improve on old ones, and to produce existing products in an increasingly efficient way — depends on two fundamental processes, which we call analysis and interpretation.

Analytical processes work best when alternative outcomes are well understood, and can be clearly defined and distinguished from one another. Interpretive processes are more appropriate when the possible outcomes are unknown — when the task is to create those outcomes and determine what their properties actually are. [2004, p. 6]

Method as analytical problem-solving means that we understand what needs to be done, and can divide-and-conquer.

What analysis comes down to, essentially, is problem solving. In this view, business consists of a series of discrete problems and an associated series of decisions and choices about which of those problems to solve and how best to solve them. [2004, p. 7]

Method as multidisciplinary conversation parses into two parts. Innovation often is sparked by having a conversation around interests rather than problems.

… an important component of innovation involves a different process, one that is not directed toward the solution of well-defined problems. Indeed, this process cannot be said to have a clear end-point at all. Rather, it is ongoing in time. The activity out of which something innovation emerges … is what we call interpretation. [....] In this interpretive way of looking at business, the role of the manager has less to do with solving problems or negotiating between contending interests than with initiating and guiding conversations amongst individuals and groups. [2004, p. 8]

The conversation can occur across businesses. IBM has sponsored a series of Global Innovation Outlook conversations amongst senior executives to surface opportunities where large-scale societal issues are discussed. These interactions encourage generative dialogue.

Bringing appropriate content into a multidisciplinary conversation requires some finesse. Lester and Piore describe the metaphor of a cocktail party hostess.

… guests are relative strangers. They are invited because they might have something interesting to say to one another, but only the hostess really knows what this is, and even she is not always sure. To make the party a success, she will often invite enough people so that it does not really matter if any one pair of them fails to hit it off.

One the party is under way, her job is to keep the conversation flowing. [... She] will intervene to introduce a new topics when two people do not seem to be able to discover what they have in common on their own. She may break up groups that do not seem to be working …

The interpretive conversation is open-ended. If the conversation at a cocktail party were suddenly to come to an end, the party would be considered a failure. [2004, pp. 56-57]

From a conversation as dialogue to open up new directions, conversations can then lead to action requiring a multidisciplinary team.

[Donofrio] We’ve also got a culture that is used to way that things were in the 20th century, that is used to its invention, its creation, its discovery. So they all kinda have to be transformed [....] There’s a certain amount of discipline, and process that you need, just in case you did something good, and you’d like to repeat it. If for no other reason, then you need some structure, or some stricture, if you will. But all of that has to be transformed. It all has to be changed, meaning, you have to build an infrastructure now, that supports innovation in the 21st century. You’ve got to be able to not only get these bright technical people, get their bright idea. Either you train them to become multi-disciplined, or you match them up in a team that is multi-disciplined. [2006, audio at about 3:15]

Orchestrating a multidisciplinary group enables requisite variety.

Economics as colonial trade versus global talent

The phenomenon on globalization means different things to different people. Donofrio describes international business with a heritage in the economics of colonial trade.

[Donofrio] It was the idea in the 20th century, the old British trading company mentality for colonization, if you will. You can’t do business in my territory, if you don’t leave something in my territory. That is not what’s really going on, here in the 21st century. [2006, audio at about 5:45]

In the “new” service economy, assets are less frequently anchored by geography, and talent is mobile.

[Utley] We’re talking globalization …. Are these just a lot of words, or are there is a new concept of as to what this corporation is?

[Donofrio] [... In] our case … it’s what we are. It’s how we get things done. We just do things where they make sense to be done. We don’t worry about what country they’re in. If the talent is in India, we’ll do it in India. If the talent is in Russian, we’ll do it in Russia. Now, we’re about 100 years old, and as International Business Machines, this isn’t a foreign thought to us. [....] Globalization simply says do it, in our case, do it once and for all, and do it in the most effective place.

[.... You] need the diversity of talent where ever it is in the world. As much as we would like to think we’re the brightest people in the world here in the United States — and we are some of the smartest people in the world — there are smarter or as smart as people around the world. We need all of them working on it. The technology has clearly allowed us to be connected on around the clock basis. [2006, audio at about 5:45]

The decline in the number of graduates with advanced degrees in Science, Technology, Engineering and Math drives the pursuit of talent into a global arena.

The challenge of industrial age business and 21st century business

Much of the world still operates in the private, transactional, analytical and colonial mode. It’s been the way that companies have made profits in much of the 20th century, and will have a place in the 21st century. When innovation in this traditional model seem to work, however, perhaps the business leaders should consider the alternative mindset of open, collaborative, multidisciplinary and global.

In the transition, it’s likely that businesses will have to operate in both modes. Hybrid modes may not be feasible. There’s a lots of opportunity for learning, as we’re in the earlier phases of understanding business models in this new world.

References

Henry Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business School Press, 2003.

Nick Donofrio and Garrick Utley, “Innovation in the 21st Century”, The Innovation Value, March 30, 2006 (originally an MP3 recording on theinnovationvalue.com, now an edited version at the Levin Institute).

Jane Jacobs, Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics, Vintage, 1994.

Richard K. Lester and Michael J. Piore, Innovation: The Missing Dimension, Harvard University Press, 2004.