Innovation and Value Creation
Innovation comes from nurturing creativity and supporting ideation.
Traditionally, innovation has started with -- and capitalized on -- breakthrough ideas in all fields of research, development and entrepreneurship. From Thomas Edison toiling towards a commercializable light bulb in the late 1870s to Marie Curie’s pioneering radioactivity research that took her life untimely at the turn of the 20th century, groundbreaking inventions and true innovation have often been either painstaking and hazardous for the authors, or fraught with resistance and characterized by slow adoption rates by those surrounding them.
Leading multinational companies across industries have long organized to capture individual creativity and established corporate funds and entities aimed at identifying and sponsoring inventors as corporations seek to identify, support and grow the most promising and innovative platforms into profitable ventures.
However, even as these corporate programs reach outside their enterprises to source innovation – because they recognize that even the most advanced corporate R&D centers need this “out of the box” complement – corporations still fall short of instituting a systematic and integrated effort to fully leverage the potential for innovation.
Global industry tenors, like GE and Caterpillar, have embarked on a journey to internalize innovation and their leaders are mobilizing their enterprise’s resources to accelerate on the path of value-creating innovation. To quote Jeff Immelt, CEO of GE: “[we] must turn data into insights, and insights into results”. This requires a transformation from thinking of innovation as a discreet and/or extraneous process that helps bring better products and services to market to a new mindset fully tuned to Value Creation.
Value-Driven Innovation
The race for innovation, fueled by the rapid progress of science and technology and spurred by global access to – and instantaneous exchange of – information, has taken another dimension. No longer an isolated function reserved to a select breed of creative minds, newly-defined innovation is THE core capability that leads to a dynamic and profitable future of sustainable competitive advantage.
Indeed, the Information Age has forced a new paradigm: traditional definitions of business scope and activity are blurred as information technology helps eliminate “transaction costs” that are purely based on limited or protected access to information. Middlemen up and down the economic value chain whose purpose was merely to benefit from these transaction costs are being displaced or eliminated. Conversely, data-mining and process-driven service integrators that specialize in asset productivity solutions are competing aggressively and effectively against the traditional industrial goods’ distribution networks.
Furthermore, the gigantic amount of available information triggered by the Internet and amplified by the explosion of social media has unleashed a new era of “smart everything” innovative services enabled by Big Data mining and management.
As a result, conventional measures of market forces no longer apply: information management-based barriers of entry disappear, competitive landscapes morph and transform fluidly as businesses are able to integrate product and service offerings up and down the value chain, thereby extending their value propositions to customers in adjacent or new markets.
Even more significantly, the very essence of “value creation” in this new era of the Internet of Things (IoT) is redefined to encompass free or inexpensive “gimmicks” you didn’t know you needed... until someone or something connected you to them. And access to these “gimmicks” is free too, thanks to this new realm of app-based services at your fingertips most everywhere there’s some internet-connected electronic device handy. This is a new concept of value.
Value is no longer limited to a tangible thing that performs a specific set of functions and that we acquired with a concrete sense of “bang for the buck” (our estimate of the economic value attached to our physical purchase that included features and functionality, aesthetics, quality, brand equity and resell value). Today, we routinely seek pure service from which we derive a set of additional and intangible benefits.
In terms of classic microeconomics theory, this is not about sliding along the same indifference curve and trading features at the same level of utility (satisfaction). Instead, it’s about jumping to another curve at a decisively higher level of perceived value.
The Value of Service
When it comes to pure service, powered by information technology and enabled through internet connectivity, the traditional measures of economic value are displaced and redefined along a different set of attributes which add up to a new level of valuation: personalized convenience. The underlying valuation criteria chiefly are:
· Ease of access and use
· Immediacy
· Portability
· Universality
· Minimal to free cost
Ease of access and use:
Pioneered and best exemplified by the late Steve Jobs, CEO of Apple, this is about creating and providing an appealing and intuitive interface between user (consumer) and service platform.
Gone are the lengthy and tedious user manuals: devices and apps are easy and fun to navigate, play with and expand to adjacent services with a simple tap on a digital screen.
Sleek design is an important component but the real genius comes from true innovation in the interface: first imagining and anticipating consumer interaction with a device -- either hardware or software, and now boosted by middle-ware -- and finding novel ways to make this interaction (navigation interface) intuitive enough that it is a second reflex; easier and more naturally than even acquiring muscle memory. No cramps, all fun.
Immediacy:
For those of us who remember how long it used to take to connect to the Internet via Ethernet cable and dial-in, and still recall the agonizing slowness of uploading and downloading documents along with the anxiety of getting likely disconnected at any moment, today’s speed and stability of internet connection and processing are nothing short of marvelous. That was less than 20 years ago! My teenage kids could never relate to this. They get frustrated when they have to wait more than 10 seconds to access anything.
Immediacy and reliability of connectivity is a given, today. And immediacy has transformed the way we access knowledge, as well. I learned this when I told my son to “get back to studying” as he was focused on his computer screen, ear plugs on. “But dad,” he said, “I am studying”, with a roll of his eyes as he showed me his physics tutorial on YouTube.
Portability:
Think of the last time you used Uber. Or, if you drive your own car, the last time you used Google Maps to get you somewhere. In addition to the expected attributes of ease of use and immediacy of service, we can use all kinds of services on the go.
Because we can, our psyches have quickly assimilated the fact that we should and need to. We answer emails on our phones while walking, we read online while waiting in line at the supermarket, we order a gift on the plane or we check an exotic tidbit in real time.
Portability may be the attribute with the highest level of unconscious impact on modern lifestyle. Because it changes our cognitive behavior around daily activities, from planning ahead to memorizing and multi-tasking, it also changes the way we act, communicate, and socialize. It is nothing short of a quiet revolution in socio-dynamics.
Universality:
The only thing that still ties us down to the physical space we happen to be in is plugging our devices into wall sockets to recharge. To the extent that we have some smart device at our fingertips and juiced up, we “own” the planet! We have translation software for information in other languages, and voice recognition paired to it that helps us communicate with and learn from others when we travel overseas. In other words, any savvy user of today’s hardware and software technology – and an appetite for going places – qualifies as a global citizen.
We stay in touch via social media. And our social media friends give us another level of connection... to their friends! In addition, the continual stream of social media updates keeps everyone in the know. Except for me, sometimes. Like when we got a snail mail birth announcement from friends who live in Beijing. My wife and I were excited, but it was old news to our kids who had found out weeks before. Via Facebook, of course! Sometimes I wonder what else they know that we don’t!
Minimal to free cost:
Freed from brick-and-mortar point-of-sale and its space and time limitations, we are still on the same planet but evolving in a parallel universe: ubiquitous access to merchandise of any kind, from basic commodity to capital goods – through service portals is not only the way to go for convenience and immediacy, it’s also cheap (if not free!)
The economics at work in this virtual world are a radical departure from the past. You know that the traditional concept of economies of scale has been transcended into another dimension when you realize that there is a dollar value calculated and assigned to a single click on any given app. Your payment -- if any -- for a pure service is marginal but far from insignificant: a buck each from one million consumers is still a million dollars. That’s one side of the scale “coin.” The other side -- and predominant in the P&L of pure service providers is the revenue potential from third parties willing to pay to advertise to and access the service provider consumer base.
No wonder the US Bureau of Statistics and other federal agencies, as well as their equivalents in other countries, are struggling to account for – and even approximate – the actual economic value contribution of services. The traditional construct of national wealth creation’s measuring and accounting that boils down to Gross Domestic Product (GDP) has become obsolete. Based on a system of data collection limited to material, labor and capital (input) against units and average prices of product or service (output) – the ratio between the two being the measure of productivity – GDP as a macro-economic tool is not equipped to account for pure service value contribution and can only capture a fraction of it. What GDP does not capture is the “amplifier effect” of virtual revenue generation from online marketing through advertising and direct access to consumers enabled by pure service providers.
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Immersed in a world that spins innovation-driven service with increasing velocity, we are continuously upgrading the age-old economic concept of “utility” … but we have yet to learn how to account for actual value creation, the economic value of personalized convenience.