The Breakdown of Innovation
The Big View
This isn’t a commentary about how innovation gets buggered up and halted. It does make a soft appeal to Clayton Christensen’s seminal book and his warnings on innovation. Enough marketplace focus on “innovation” has provided sufficient discussion for the subject to be decomposed as a well-formed sequence of different types of creation across multiple domains. We would like to offer that “breakdown” of innovation.
Simon Wardley in his blog and book – Bits or Pieces? (https://blog.gardeviance.org/) and on Medium (https://medium.com/wardleymaps) – provides a view on the evolution of a component in a value chain. That evolution moves from genesis, through custom-built, to product, and ultimately to commodity. The scale is brilliant and is a fantastic way to look at innovation.
We have seen innovation disappear from environments when IT gets outsourced for cost reduction reasons. Companies find that they have then lost the ability to transmit strategic mandates to innovate into an area that has been outsourced. If clients do try, their ‘requests’ get routed to contract change control. That change control can be a real innovation killer.
So, we took a step back and looked at innovation from a narrow view of IT and, particularly, the outsourcing of IT services. Simon’s distinctions are usable for our evaluation of vendors and product life-cycles until we look at cloud. Stage four of evolution was commodity and, parenthetically, utility. Our view is that utility has become a notably distinct phase of IT offering development to the right of commodity in IT outsourcing. The biggest distinction is who actually holds the means of production:
- For commodity, the customer still has to pre-pay for services that are drawn down upon of the duration of the contract.
- For a utility, the customer pays for only those services that they consume.
Our view then to the evolutionary scale of IT offerings (and for many areas of high technology) becomes for us a natural measure for innovation with 5 major phases or zones:
1. Genesis – Discovery/invention
Analogous to Simon’s “Genesis” stage. For us, this phase is where unique and new capability is either discovered or invented. Discovery of a new property of materials or proof of some previously theoretical physics such as has occurred in the field of quantum computing falls into this area. Knitting this into a value chain is difficult if not generally impractical. To be useful it must move to the next phase.
2. Custom Built – Packaging
Similar to Simon’s “Custom” stage, we see this as the phase to which any discovery or invention must move to become reusable. In fact, we see this phase of innovation to be where a person or company realizes any opportunity to make its discovery or invention something that can be inserted into value stream. Quantum computing is trying to move into this phase. Early entry could be defined to be the creation and operation of a first quantum computer. The ability to create multiples certainly suggests an innovation is fully into packaging.
3. Product (including rental) – Productization
Aligned to Simon’s “Product” stage, this phase appears when the discovery or invention can be packaged in a form that a market will adopt. Packaging is key, but now there is a business model that must wrap the package. Furthermore, this stage requires the presence of a customer. Discovery and Packaging are net investment by an owner. At this phase, market dynamics appear.
4. Commoditization
At this point market dynamics become a heavier element of consideration. Commodities are services or products that are largely identical to each other regardless of vendor. Where differences do occur they typically do not deal with the functional or even non-functional nature of the offering. So, key in this phase is that a service or product is nearly if not absolutely identical across the marketplace. In this the vendor will differentiate through services and contract for the delivery. The risk is distributed between the vendor and the consumer. Scale is often a major factor for a vendor; that is, the bigger the production line the cheaper the output.
5. Utility
While commodity and utility have the similarity of a common product or service, there is a big difference. The difference here is the economic model and where the service financial risk sits. Pure consumption of service is what happens in this phase. Capital expense and risk shifts dramatically, often completely, back to the ‘producer’ and the customer now experiences only operational expense.
The Innovation Phases
In summary, innovation can be thought to advance or evolve through these 5 phases or types:
- Discovery/invention – This phase requires innovation derived from exploration and research.
- Packaging – This phase puts an invention or discovery into a form that is controllable, reusable, manageable. Innovation here is in the packaging.
- Productization – Innovation in this phase develops from the assembly of a package into a product. It may take advertising and marketing but will also require a business model such as wholesale, retail, subscription, etc.
- Commoditization – Innovation here appears as much from a market demand for a product as it does the ability to duplicate a standard product. Our question here is who actually controls entry into this phase. As a case study, Intel (and AMD) could be said to be the drivers for the x86 server which is in this stage. Intel has a product, but the server vendors are producing a commodity product. Another driver is the marketplace itself; widespread demand for a product will essentially push that product into a commodity stage.
- Utility – Innovation here is often the same as in packaging (assembly), productization (business model), and commodity (standarization). But a major new element is the shift of ownership plus the addition of delivery mechanisms for the the pure service outcomes. Logistics exists in the commodity phase, but here the logistics are in a new domain. Instead of warehouses and shipping systems for servers, it becomes networks and web portals.
Innovation Disruption
Disruption occurs when the movement between phases is not “natural” or direct . When innovation causes a skip forward or backward, substitutions of elements of packaging, business model, logistics, etc. can all trigger disruption to some degree. The most dramatic disruptive innovation occurs when a discovery/invention gets inserted in a mature evolution. Simon talks about how digital camera technology disrupted the film industry. CCD’s were an invention that completely displaced film in a sequence that forced changes in packaging, products, marketplaces, and derivative services. In essence, the ‘forward’ pace of film products was completely reset by their replacement with CCD’s.
Final thoughts
There may be other ways to decompose innovation. Our team sees this approach to be among the most usable when considering strategy, vendor/product/offering selection (especially big ones), planning and organization. Just as importantly, we can use this breakdown to anticipate how selections among vendors will effect the IT services that are procured including how they may adapt to the buyer’s resilience in their own marketplace.
A big thanks to Simon Wardley for making his work available under Creative Commons