Strengthening the absorptive capacity of your organisation

This post is about the concept of absorptive capacity. When you are trying to improve a company, an industry, or promote innovation and learning in a region, this concept is very important. It is often poorly understood. My clients in the education sector always relate absorptive capacity to education levels. While this is true, it is only a part of the story. Business people, on the other hand, tend to focus their innovation efforts on product and process improvements, and they generally tend to not think much about their organisations absorptive capacity, nor do they think about how the environment beyond their enterprise affect their absorptive capacity.

Let me begin by unpacking absorptive capacity. My favorite recent definition is provided by UNCTAD (2014:23), where they define absorptive capacity as:

“The ability to recognize the potential value of new or novel knowledge and technology, and to transfer and assimilate it with the objective of bringing to market a product or a service. It determines if and to what extent a firm, an industry or, indeed, an economy, can use existing and new knowledge to compete”

Some researchers think of absorptive capacity as a completely distinct concept from innovation systems, but I do not agree with this. In our view technological capability (as captured by the description of the innovation system) describes the overall system dynamics: in essence at an aggregate level where it creates an ecology, whereas absorptive capacity describes the capability of individuals and smaller teams (such as a management team) within this ecology to identify knowledge gaps or new uses of knowledge, and to identify and access external knowledge and then combine it with existing knowledge. It is very hard to imagine what a dynamic innovation system would look like if it did not have strong absorptive capability at the levels of individuals, teams, organisations and networks.

This argument is based on the seminal work of Cohen and Levinthal (1990)who argued that:

  • Firms invest in basic research less for particular results than to be able to provide themselves with the general background knowledge to enable them to rapidly apply scientific and technological knowledge through their own innovations, or to respond quickly when competitors come up with a major advance. Thus firms do research to increase their knowledge base and learning which enables them to innovate when they need to.
  • The relationship between the absorptive capacity of firms and the broader technological capability present in the environment causes firms to be highly sensitive to the context within which they operate. This larger context not only provides inspirational ideas, but the implementation of the ideas depends on resources from this larger context, such as technical experts or specialists, professional, management and vocational skills, and even standards and financial or regulatory systems.

Cohen and Levinthal (1990) contend that the absorptive capacity of firms is more likely to be developed and maintained as a by-product of routine activity when the knowledge domain the firm wishes to exploit is closely related to its current knowledge base. This is different when a firm wishes to acquire and use knowledge that is more distant from its ongoing activity. The firm must then dedicate effort and resources to create absorptive capacity. It is hard to imagine how this can be done without reaching out to networks of institutions, skilled and professional employees, and networks of suppliers who are all striving to increase their relevant knowledge.

Hidalgo (2015) explains that with the increasing sophistication of technology, the ability of organisations to have all the relevant knowledge in-house is diminishing. Therefore knowledge is being increasingly spread among larger numbers of actors, who need to work together dynamically to produce and transact. Knowledge tends to flow more easily where there is a certain density of diverse actors. I have written about this often on my thinking out loud site.

This means that absorptive capacity is a dynamic capability that influences the nature and sustainability of a firm’s competitive advantage. As a side remark to policy makers, it means that incentivising R & D and then measuring patents is again only capturing half of the story. Most of the “R & D” that companies undertake are about deepening understanding, mastering variation and performance, and learning about boundaries, failure and so on.

Absorptive capacity is about knowledge and the ability to gain more knowledge, often through a process of iterative learning. Some years ago I wrote that  that this knowledge may be acquired in two different ways (Cunningham, 2012):

  1. In a solitary way where knowledge is gained through experimentation(as an individual or as part of a team) without much communication or interaction with other external actors, or through a process of deductive reasoning.Or it may involve a combination of tinkering and deduction (often referred to as deductive tinkering).
  2. By purposeful interaction with other external agents involving personal or non-personal communication with other people, specialists and knowledge sources.

The first point is mainly about absorptive capacity of the organisation or individuals. However, the second is a combination of absorptive capacity of the team, and the broader environment in which the organisation can reach out to other experts beyond its own boundaries. I argue that a large part of the knowledge a firm need is available internally, namely the knowledge of its engineers, managers, technicians and other employees.Their knowledge is partially acquired externally through previous formal training, and partially through a cumulative process of learning-by-doing. This internal knowledge, which is available at any given time, is the main innovation resource of a firm.  It is often highly tacit, which explains why firms of a particular type cluster together in regions. However, not all firms are able to tap into this internal asset, mainly because many are managed in a way that does not allow them to reflect on their own patterns of behaviour or the trends affecting their performance. When the day-to-day emphasis is on survival or routines, a tendency to under-invest in purposeful innovation activities may occur. This behaviour not only undermines the development of the internal knowledge base, but will also lead to underdevelopment of external networks that could lead to exchange or transactions with other knowledge sources.

Learning from others is only possible if the costs of interaction with peers and other organisations are low enough or if the density of networks makes this possible. One of my favourite innovation system gurus Malerba (2005:387) states that:

“knowledge is highly idiosyncratic at the firm level, does not diffuse automatically and freely among firms, and has to be absorbed by firms through their differential abilities accumulated over time.”

This accumulation often emerges through an iterative cycle combining deduction, experimentation, application, reflection, learning and adaptation between people working on the same problems, ideas or opportunities.

The implication is that in economic development we should focus on those firms, organisations and sectors that are able to innovate, and find ways to accelerate their learning journey. These are the companies that are already absorbing new ideas from their environment and beyond, and they are actively trying them out, experimenting, following or playing with ideas. They are usually not so hard to find, as they are curious about new ideas. At the same time, we must build bridges (or reduce the costs) for the rest of the economy so that future entrants and laggards can upgrade and step up and be more innovative and efficient than the incumbents, as the incumbents may also become complacent in future if new competitors do not challenge them.

For my business clients, it means that leaders must be sensitive to what their teams are learning about, and what can be done to encourage learning in the three ways I outlined earlier. I have developed a simple workshop format that I use with my coaching clients and students to asses which factors are hampering absorption and learning, and which factors are encouraging absorption.

Image credit: Images drawn by Lina Stoeckler during our annual Mesopartner Summer Academy where I usually teach on improving absorptive capacity.

Sources

COHEN, D. & LEVINTHAL, D. 1990.  Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly,Vol. 35(1) Pp. 128-152.

CUNNINGHAM, S. 2012. The fundamentals of innovation system promotion for development practitioners. Leveraging a bottom up understanding for better systemic interventions in innovation systems.Pretoria: Mesopartner.

HIDALGO, C.S.A. 2015. Why Information Grows: the Evolution of Order, from Atoms to Economies. New York: Basic Books.

MALERBA, F. 2005. Sectoral Systems. How and why innovation differs across sectors. In The Oxford handbook of innovation.Fagerberg, J., Mowery, D.C. & Nelson, R.R. (Eds.), Oxford ; New York: Oxford University Press.

UNCTAD. 2014. Transfer of technology and knowledge-sharing for development: Science, technology and innovation issues for developing countries. UNCTAD Current Studies on Science, Technology and Innovation. UNCTAD/DTL/STICT/2013/8: UNCTAD.   http://unctad.org/en/PublicationsLibrary/dtlstict2013d8_en.pdf

Four functions of innovation and technology management

This article is meant for my business clients and colleagues managing technology transfer and innovation extension services.

In the past I have written much about the professionals and organisations who are responsible for helping entrepreneurs to improve and strengthen their innovation portfolios on my personal blog site.

To recapitulate: I believe that many industries are struggling to modernise because their supporting institutions use completely different frameworks to manage innovation (or perhaps the supporting institutions make their choices as randomly as enterprises do).

One of the first concepts that a tech transfer institute or industry support organisation should transfer to enterprises is “how to manage innovation and technology”. Just because there is an engineer or an MBA/PhD in a company does not guarantee effective or creative management of innovation and technology.

Today I shall focus on the four broad functions that must be managed strategically in every enterprise and supporting institution. Even if someone in the organisation has the job title of Innovation Manager or Technology Manager, these functions should still be visible throughout the organisation. In other words, this is not somebody’s job, but it helps if somebody coordinates these activities. Also, see these four functions as the minimum. More mature innovating organisations will have far more depth than these four high level headings.

The four functions agreed by most scholars and innovation experts can be summarised roughly as:

  1. Searching and scanning for new ideas and technologies, both within and beyond the organisation. This includes looking at technologies that could affect the clients of the organisation, and technologies that could disrupt markets and industries.
  2. Comparingselecting and imagining how different technologies could impact the organisation, its markets and its own innovation agenda.
  3. Next comes integrating or deploying the technology or innovation into the organisation. This includes adjusting processes and systems, scaling up implementation, and project managing the whole change process.
  4. The last step is often overlooked, but new technology and innovation often make new ideas, innovations and improvements possible. I call this last step exploiting the benefits of a new technology or idea. This could involve leveraging some of the additional benefits or features of a technology, perhaps by creating a new business unit focused on an adjacent market or particular offering.

When I visit institutions, organisations and companies, I always ask “who is thinking about change taking place beyond your industry or key technology?”. I cannot tell you how often I hear that “the CEO” or “the production manager” are on top of new developments and will be attending a tech fair next year. How can this huge responsibility fall on the shoulders of one or two people, who are at the same time biased towards the current strategy which favours justifying past (sunk) investments? Or if you ask “How did you choose between two technologies?”  you will be surprised how little time was spent considering new business opportunities, or how few companies asked for on-site demonstrations or samples from their preferred technology providers.

I will refrain from being too critical of technology transfer institutions and industry-supporting organisations, except to say that these organisations should be a prime example to industry of how to scan, evaluate, compare and integrate new ideas and technologies. We don’t just want to see the shiny machines and neat facilities, we want to understand how you arrived at your decisions, and how you made the best of your investments after implementing the change. Furthermore, industry wants to know what’s next, or what’s beyond their vision and how it may affect their industry.

To bring it all together, the technological upgrading of industries is plagued by many different market failures. These failures include the tendency NOT to invest due to high research costs, due to fears about making the wrong choices, or because so many decisions and changes must be made at the same time – this while the business continues, markets fluctuate, and technologies change faster and faster. Companies (and institutions) cannot afford just to kick start innovation management immediately before making a change (or when forced by external forces to make a decision). These functions must be managed strategically on a continuous basis, both at the level of top management and within the different functions of the organisation. Both companies and their supporting institutions need to manage innovation and technology, not only from an operational perspective (striving for continuous improvement, etc.) but also from a strategic point of view.

The importance of the middle management layer for innovation

I love reading material and listening to podcasts about innovation and organisational change. One thing that strikes me is that a lot of the material focuses on the role of the leadership at the top of the organisation. This is at odds with my daily experience of working in small and medium-sized organisations.

In most of the places where I work, the challenge is often that there is a thin or non-existing layer of lieutenants that can coordinate and implement the ideas originating from higher up. Over many years of working in the manufacturing sector in South Africa I have often been struck by how “smart” top management can be, but then how wide the gap is between top management and the workers facing clients or working on the factory floor.

Recently, while reading the November-December 2017 issue of the Harvard Business Review, I found this quote from a March-April 1972 HBR article. It is from an article by Hugo Uyterhoeven.

This quote is exactly why I think we don’t always have to start with innovation right at the top, although top leadership that supports broad innovation certainly helps. Sometimes a motivated middle manager could be a great starting point for an improving innovation. Taking ideas from the top or using feedback from below or outside of the organisation, could be as good a starting point as the vision of a great senior leader.

The middle management level is also where coordinators of innovation or change can benefit from instruments developed in the field of complexity thinking or naturalistic decision making, like the instruments developed by Dave Snowden or Gary Klein or many others. Decisions at this level are often made with limited resources, incomplete information, competing objectives, tight time lines as well as shifting patterns. As the quote from Uyterhoeven suggests, these decisions often have both strategic and operational value. From an innovation perspective it means that the focus should not only be on developing good products or improving services, but also on innovation regarding how decisions are made, conversations are held, opinions of team members are elicited and considered, and how teams within organisations reach out to other silos or even organisations. Moreover, knowledge is created and recognised for its practical value by middle managers.

I believe that every middle manager can play a critical role in enabling an enabling an innovative culture.

One last thought related to this topic: while many companies have several reliable middle managers, they often don’t have succession plans in place for this level. There isn’t a pipeline of talent being refined in the organisation. Losing a great middle manager can have a great impact in small and medium-sized organisations. I have seen many small companies stumble because they don’t pay attention to the depth of their middle management

Revised: Industry 4.0, IoT, 3D printing and more. Why some technologies diffuse so quickly and others don’t

I wrote this article yesterday on my thinking-out-loud site and was pleasantly surprised at the interest it sparked. My language guru Linton helped me to fix many grammar errors, so here is the revised version.

I receive questions daily about the Internet of Things, Industry 4.0, 3D printing and many other technologies and whether and how I think these technologies will disrupt manufacturing and education in particular and the world in general. These questions are not only from government officials, but also from businesspeople, friends and fellow geeks.

Let me briefly state that I don’t believe it is possible to spot a paradigm shift in the future or in the present. So I would be hesitant to predict whether or when all these big changes will happen. However, when we look back we can spot shifts. Technological change typically takes places slowly but surely, and then at a certain point there is a massive shift. The point I would like to make is that even the futurists have great problems predicting the direction of that sudden shift. We must also consider that technological paradigm shifts almost invariably do not work out the way they are predicted to do before they occur.

For the last few decades many major technological advancements have been heralded as game changers. The advances are often generalised as sweeping statements about large-scale change. However, in most cases, new advances take a long time penetrating our daily lives, if they ever get that far.

So let me rephrase the original question a little. Perhaps the question is more about figuring out which technologies are diffused quicker than others, and why. This is something that we can calculate to some degree using a short history and the current status quo of assessments of technologies that are being touted as near-term game changers.

Dissemination of technology or knowledge always consists of at least three elements. I will for now ignore the process of diffusion for the sake of brevity. There is a supply side, a demand side and some kind of institutional or social construct that enables and even multiplies the diffusion.

The supply side is often most optimistic about how their ideas are going to change the game. The demand side is often naive about how useful a new technology is in real terms. Many potential users simply wait and see. Then there are the institutional mechanisms that operate at local, national, regional and international levels. There are lots of tensions at this institutional level, because this is where a whole range of social technologies, formal and informal, have to emerge or change. Just think of how US-based software companies are constantly coming up against data privacy groups in Europe. I am sometimes grateful that the institutional level takes time to change. Changing institutions to enable knowledge dissemination often requires multiple knowledge domains, different management levels and social play-offs. Often changing institutional support to improve diffusion must also cater for integrating and synchronising many other simultaneous change processes that are not only technological. They could be about regulations, rights and creating new forms of organisation. Furthermore, physical technology does not always change things the way we expect. After all, innovation is a process of combination and recombination, both at the level of physical technologies and also at the level of social technologies.

There are typically a few constraints that frustrate the diffusion of new technologies broadly speaking. The first is the fixed costs of the technology itself. Fixed costs slow down supply (otherwise we would already have electric vehicle charging points throughout the country), and also slow down demand (I cannot afford a Tesla yet).

Suppliers like to think that their solutions will fix social mechanisms, but this is often the area where change is the slowest. Social technologies often take the longest time to evolve (for instance in developing standards and regulations for electric vehicles, charging points and recycling of batteries). By evolving, the technology itself often changes with respect to its use, meaning and value  – often beyond what the originators had in mind. Thus while individual users can quickly adopt a new technology or idea, formal institutions, regulations and supporting infrastructure often take longer to adapt to new ideas. This means that the supporting ecosystem that enables new ideas to be quickly diffused perhaps adds additional costs (perhaps massive infrastructure investment or learning is needed), or fails to reduce costs in the diffusion of ideas. This is where the second constraint comes in. It depends on how complex are the required social changes. I mentioned earlier that institutional diffusion must also integrate different complementary technologies. For instance, using a smartphone to make phone calls is easy (single technological paradigm). Using a smartphone to manage or monitor a part of a production line requires many complementary and concurrent capabilities and technologies. It may even require completely rethinking organisational structures, production lines and supplier networks. Simply put, if the new idea is very complicated to use (due to the many concurrent investments and capabilities that are needed), then the costs goes up in terms of education, regulation, infrastructure, coordination, specialisation, management and so on. Just think of what it would take for South Africa to adopt driverless electric vehicles …

Perhaps this also explains why individual companies (think hierarchies) tend to absorb technologies easier than societies or economic sectors. Inside a company management can overcome coordination failures much easier than within a sector or broader society. Meso institutions such as universities and technology transfer organisations are very important for overcoming these coordination costs, but they tend to change slower.

The complexity of technology and its demands on the meso organisation is important in my work. I help these organisations figure out how to navigate the complexity of new technology adaptation and diffusion. It requires an understanding of users, some understanding of technologies, but a lot of understanding of the process of change and organisation. I don’t think I would be able to do my work without my understanding of market failures, especially with regard to failures in the capturing, dissemination, absorption or valuing of knowledge.

There are lots of amazing technological ideas out there that have been tried, tested and measured and found to be effective. Many companies here in South Africa are already using these technologies. So supply and demand exists, and in many cases there are transactions. Yet many of our industries, enterprises, universities and policy makers don’t know how these technologies can save costs, improve efficiency or strengthen resilience. Nor do they know which ideas will stick or have the most impact. So there is a missing institutional capability that reduces the complexity of the technology. What is often missing are institutions that make the dissemination of new ideas easier and cheaper. It is often more the case that the users (and possibly suppliers) don’t know how much the full implementation or use of these ideas would cost, or what skills, complementarities or networks are needed to master new ideas. Many market-supporting social technologies (in the form of institutions and networks) are lacking. Somebody must reduce the search, evaluation and coordination costs. This is where the complexity lies. And neither do we want our institutions to try and implement every new technology – this is where social balance and a longer-term vision are required.

So now I can get back to trends such as the Internet of Things or digitisation of the manufacturing environment. Many manufacturers know about Computer Aided Design (CAD) simulation or even rapid prototyping. But how can we reduce their risk of trying 3D printing, or how can they add more sensors to their production facilities so that they can improve measurement and control? It is not just about the cost of using the technology once or twice. There are issues that are holding entrepreneurs back from simply rushing to an online store and hitting “buy now”. Where would they get the trained staff from? How would they train existing staff? How would they manage a new competency? What would it cost to certify or maintain? Where would they find new customers or suppliers, and what would it cost them to develop the complementary capability and optimally use the new technology? And most importantly, how do we reduce their risks of trying something in different combinations? These are the issues that a network of institutions must consider as they craft their technology extension and demonstration strategies.

For me there is a strong role for technology intermediaries to play in demonstrating, perhaps on a small scale, how new technologies can be integrated into existing workplaces. This means that technology intermediaries must be funded to host (and master) a wide range of complementary technologies, so that entrepreneurs can combine what they have in place with the capabilities of these technology intermediaries. Or that new entrepreneurs not burdened by sunk investments can use their agility to gain access to complementary technologies in order to create new markets. These institutions should not be measured by how many companies fully absorb new technologies (this could lead to perverse incentives), but perhaps by how many companies have tried, engaged with and been exposed to new ideas.

At the same time, policy makers should look at ways to introduce new technologies into developing countries beyond demonstration or technology extension. Some countries such as Germany or Singapore have also been purposefully supporting disruptive incumbent enterprises by supporting the uptake of new technologies. Sometimes you can demonstrate until you are blue in the face, but incumbents won’t change if they don’t have to, and small enterprises sometimes simply cannot build up the momentum to challenge the status quo.

I would like to end this blog by briefly summarising what I’ve been discussing. For me the question of how new technologies may affect our lives is too focused on the hardware  and the geeks who love it. Even though I admire the suppliers and developers of new technologies, and I really admire the sophisticated users who are constantly inducing the emergence of newer and greater technologies, I believe that the real change we need is in getting better at creating responsive institutions that lower the costs for suppliers and buyers to try new things. This is where we can overcome many of the costs that slow down the absorption or dissemination of new technologies.

 

Innovation as culture rather than as a technique or function

No tool or technique will improve the innovation culture of your company – it is a relationship thing and leadership is central to success.

I share some thoughts in this weeks Thought Thursdays newsletter of the USB Executive Development.

 

Click here for the article on the USB-ED website,

Innovation strategy metaphors: building bridges or strengthening bases

I have been inspired by some of the metaphors developed by Sonja Blignaut in her blog. She uses these metaphors to help leaders understand polarities, balance and strategic fit.

I therefore thought that I should write up two metaphors that I often use when helping leaders to decide where to focus their strategic innovation attempts. When leaders have to decide on what to focus their attention, they can either strengthen their base, which is focusing on where they can improve what already exists, or they can build bridges, which is focusing on the future, exploring beyond the horizon.

Let me explain these two metaphors.

Strengthening bases. From an innovation perspective, strengthening the base is all about using current resources, infrastructure and people in a more optimal way. This process need not only be inwardly focused, but could also apply to improving interaction with suppliers and relationships with clients, or improving access to existing markets. In the base-strengthening mode there is a strong focus on getting the basics right, on becoming more efficient, and on measuring progress and performance. In a base-strengthening strategy there will be a lot of efforts aimed at improving current products and services as well as  processes and internal systems.

Building bridges. From an innovation perspective, building bridges is about reaching out into adjacent or new territories. These territories could be either technological innovations or markets or even new business models. While the direction may be clear, the exact approach may not be immediately clear. A few pioneers, typically with a broader skill set, are sent to scout for possible beachheads or footholds and then help the organisation to establish anchor points across uncertain territory. The mindset of management is flexible, targets are negotiable, and performance is measured more in terms of potential than actual performance. In a bridge-building strategy there will be a lot of attempts to try new ideas, to experiment with new marketing methods, technology and even partnerships, both in terms of product/service and process/system innovation and business model arrangements and management systems.

After explaining these two different mind sets I like to ask leadership teams according to which metaphor they are operating You won’t believe how often teams cannot agree on whether they are building bridges or strengthening bases. This usually leads to an interesting discussion. Ultimately it is not about choosing one or the other, but the organisation must be clear about which area it is focusing on: base strengthening or bridge building.

I don’t want to overdo the metaphors, but I’d like to make one last point. These two metaphors require different mindsets and skills. Base strengthening is more operational, can be more accurately managed and measured, and deals with a lot of knowns. It is complicated, but it can be planned, results can be compared, and adaptations can be made to try and improve results. Bridge building on the other hand is riskier – it is less operational and more exploratory. There are lots of new challenges, new learning and unexpected requirements that could delay progress. It would be unwise to focus on bridge building when there are dangerous cracks in the foundations.

When leadership teams discuss their current strategy they quickly realise that while they are striving to build bridges they are in fact mainly busy strengthening the bases. Employees feel frustrated when their leaders are mainly talking about bridges to new opportunities when it is clear that there are many basics that are not receiving attention that are required for a strong base require. Think of the broken window theory and how quickly we become conditioned or used to things that are out of shape or incomplete -we just aren’t aware of what’s happening. Furthermore, strengthening the base could also consume so much of their resources that organisations can lose touch with the real world beyond the organisation. Leaders have to find ways of balancing attempts to reach into the unknown with attending to the basics that makes a base a stable, reliable platform from where the organisation can build its portfolio of strategies.

How to recognise 3 kinds of innovation in your organisation

When I am asked to help a team with their innovation strategy, I always ask about their past innovation activities. Often I am told that they are not yet innovating, or that they innovate infrequently, or that they are planning to innovate more in the future. However, if you ask the team to think about recent attempts to change, improve and restructure their activities, they quickly come up with a long list of innovations that they never recognised as such. These improvements might have achieved a specific purpose, but perhaps they could have been leveraged to have a more profound effect on the organisational culture. Almost every opportunity to adapt something in an organisation is also an opportunity to strenghten the learning culture, build trust, deepen the use of knowledge, encourage experimentation and to be more innovative.

To help teams recognise how they might have innovated in the past, I explain three different kinds of innovation. It is by looking back that we can also look forward.

The most easily identifiable form of innovation is innovation aimed at developing new or improved products and services. In technical products this product development process may require deep knowledge of how to harness natural phenomena or use certain technology, while in other sectors like the food sector developing a new product may require a good understanding of consumer tastes and different ingredients. Not all new products require a complicated design and development process.

Process innovation is slightly more difficult and involves making improvements to existing products and services or designing completely new products and services, often in an incremental or ongoing way. Process innovation could be aimed at improving efficiency and reducing waste or costs, or it could be the introduction of new equipment and technologies into an existing process. While many smaller companies lack this process improvement ability in-house, even high-tech manufacturers depend on specialists external to the organisation. In places where these experts or specialists are not available, process improvement costs are much higher and improvements are more difficult to implement. In many industries, product innovation is made possible by new process innovations, so manufacturers who integrate new equipment into their production facilities may be able to offer new products and services simply by upgrading their systems. An interesting phenomenon is that enterprises that are good at continuous process improvement are often able to introduce many more product innovations, as they typically have internal systems for product development, product distribution and knowledge accumulation.

The third kind of innovation is focused on business model innovation and organisational design. This kind of innovation is all about internal organisation, functional specification, combining different kinds of internal expertise, knowledge and technology domains and being able to adapt the management of a company division based on differences in specific contexts. We include innovation in marketing strategies, innovation in supply chain integration, and innovate approaches to co-opting or working with customers as well as improved management models under this heading. Enterprises that are able to manage innovatively tend to be better at process innovation, resulting in more options and the ability to improve products or services.

Many improvements that my clients want to undertake span all three of these types of innovation. Yet, the way how you go about innovating are slightly more difficult and may require different team and expertise configurations.

A resource for leaders trying to unlock knowledge

This is one of my favourite topics to write, read and talk about. How knowledge can be leveraged to enable innovation in organisations. Even if it is tacit, or people don’t even know they posses valuable knowledge, leaders can create an environment where these ideas can be surfaced, explored and leveraged.

The pdf here contains three revised blog posts that I wrote on my ‘thinking out loud‘ blog site over the last two years. I’ve had the text edited and have made some improvements. Take a look and let me know if you find this useful.

Instigating innovation inside organisations and networks

For the last four years I have been working on this idea of catalysing or instigating innovation (take a look at my “thinking out loud blog“). It is about what leaders at different points in organisations or networks can do to improve their systems, products, environments and structures.

Central to innovation is the generation, recognition and exploration of knowledge. This knowledge can be trapped in the minds of individual staff, customers, suppliers or users, or it can be explicit. It can be latent, or it can be in your face but not used.

Another central pillar to innovation is dialogue. By this I mean not just a conversation, nor do I mean communication systems. I mean an ongoing and ever expanding process of change through dialogue – the exchange of ideas, the exploration of concepts, the identification of mental maps, attractors and emergent properties, the breaking down of aggregates and boundaries and the construction of new concepts. Dialogue spans many levels, it functions throughout the organisation and even spills over the boundaries of the organisation into other organisations, cultures, systems and networks.

By combining our research in Mesopartner on complexity and evolutionary thinking, and our experience and practice in promoting innovation within and between organisations, I came up with four frames to instigate innovation.

I describe the four frames in more detail below the diagram. In the diagram the activities are on the left hand side, and the documented strategies and how they are connected are on the right side. You have the read this diagram from the bottom up.

The Instigating Innovation Framework

The first frame is about the interaction between the strategy of the organisation, the business, the unit or the team and the innovation strategy. Many organisations have a business strategy and then a separate innovation strategy. Or they have only a business plan used mainly for financial reasons, and do not spend sufficient time tracking technological change, market change and new paradigms. Ideally the business strategy and the innovation strategy should be tightly interwoven, with the one strongly shaping the other. The more your team innovates in products, processes and business structures, the more innovative your business strategy will be.

The second frame is about how the organisation recognises, generates and leverages knowledge. This is about creating new organisational and personal habits about generating, testing, combining and stretching the use of knowledge. It enables organisations to become more thoughtful, more intentional about learning, exploring and the leveraging of knowledge to become far more innovative. In this this frame the organisation activates its resources and systems to become more knowledge intensive. The result of this frame is a knowledge, dialogue and learning strategy that feeds into the innovation strategy outlined under the first frame.

The third frame is about developing a portfolio of improvement activities that spans different time horizons, technologies, markets and functions. Many companies already have improvement activities, but because the first two frames are not in place, these projects are often isolated, project driven and to some extent even disruptive. Every opportunity to change something small, to replace something, to move something or to install something should be an opportunity to strengthen the cultural traits that are healthy, and to dampen the organisational habits that are not supporting the business strategy. From this frame we develop operational and functional or unit-level strategies that operationalise and feed back into the two earlier strategies.

The fourth frame is about networks that connects the inside of the organisation with broader knowledge, technology and societal networks. It is about developing and strengthening the knowledge networks and flows within the organisation and to external organisations. Here the organisation intentionally builds the technological capability of external knowledge partners. It is from here that the organisation can support research and development and longer-term scientific thinking. Here the organisation also purposefully engage in trans and multidisciplinary research, where the thinking and knowledge base of the organisation gets stretched. From this frame we develop a network and research strategy that feeds into the earlier strategies.

Over the years I have assisted many organisations to embark on this journey. I have seen at first hand how organisations and teams that have purposefully improved the way they talk to each other have shifted from being followers to becoming innovative leaders. I have seen the power of simple frameworks that allow deep reflection on perspectives, a continuous process of a calibration of ideas that are mixed, re-mixed and tried. I have also seen how managers at all levels and individuals grow in confidence as they feel more acknowledged, valued and fulfilled.

I hope you will take your team on this journey!

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Unlocking knowledge in organisations to unlock innovation

In 2016 I wrote an article for the University of Stellenbosch Business Schools Thought Thursdays newsletter about how leaders can unlock knowledge intheir organisations to enable innovation. This article has lead to many
interesting presentations, speeches and conversations. I also wrote several follow on articles on the cunningham.org.za that can all be accessed from this link.

In the USB article I wrote that leaders must incentivise and encourage staff to accumulate knowledge through deduction and experimentation, as well as reaching beyond their organisation. This would require that staff are encouraged to invest time in reading, exploring and trying out new ideas.  Learning by doing should be encouraged, and tacit knowledge should be actively sought out and leveraged.

For the readers of this blog I think that article is a good starting point to reflect on the culture of acknowledging and encouraging knowledge creation in your organisation. It is not so important to try and formalise all knowledge as it is to actively encourage employees to actively seek out what they know and to experiment with how this knowledge can be used, recombined and leveraged.