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The Innovation Butterfly E.G. Anderson Jr.

The Innovation Butterfly: Managing Emergent Risks & Opportunities

During Distributed Innovation

Edward G. Anderson Jr. University of Texas McCombs School

Nitin R. Joglekar

Boston University School of Management


Innovation & The Butterfly Effect

“Does the flap of a bu/erfly’s wings in Brazil set off a tornado in Texas?” —Edward Lorenz


Examples of Innovation Butterflies

•  Nintendo Wii •  Minivans •  QWERTY & the Cell Phone •  Innovation Roadkill – Polaroid – Blockbuster

•  Apple Newton to iPad


Innovation is Complex Innovation process has “lifelike behavior,” much like the weather –  It can be stable for long periods •  Most innovation butterflies are “harmless” (sap

productivity 30-50%)

– Some butterflies can create shifts in market expectations and firm capabilities that feed back on each other, creating long-term shifts in market expectation •  “path dependence”, e.g. QWERTY keypads on cell

phones.

– Some innovation butterflies are under our control


The Innovation System Evolution of Benefits & Risks

Product Development is a Complex System, Literally.

Performance

Gap Desired Product

Performance

Product Performance

Capabilities

Investment

Market Wants

Legislative Shocks

Market Shocks

Technology Shocks

Project Execution Shocks &

Uncertainties

Target Setting Uncertainties &

Biases

MARKET CO-EVOLUTION

CAPABILITY DEVELOPMENT

PRODUCT PORTFOLIO IMPROVEMENT

Under Your Control


The Central Problem Innovation firms need an agile leadership strategy that is both reactive and proactive to cope with the innovation butterfly (and maybe even exploit it!)


It’s Even Worse than You Can Imagine… Unanticipated Outcomes?


There is Hope: Agile Strategies for Coping with the Innovation Butterfly

•  Information Scaling, Big Data, & Analytics •  Agile Planning Cycles •  Empowered, Decentralized, & Aligned

Organizational Culture


Adaptation Lessons from Complexity, Organization, and Military Science

•  Scaling –  Jump a level to see patterns –  Implies looking at new type of aggregate parameters &

new way of gathering information

•  Directed Telescope – Rapid information tracking & dissemination

•  Innovation Analytics – Must track criteria and timing for selection of

aggregate measures – Must account for evolution of means and variances

(risk)


Information Scaling


Maneuver-Driven Competition (PDCA to OODA to SROM)

The SROM Cycle

The speed of the cycle is what creates agility

SCOUT

ROADMAP

ORCHESTRATE

MANEUVER


SROM in More Detail •  Scouting –  Information Scaling, Directed Telescopes, Innovation-

Driven Analytics

•  Roadmap –  Flexible with contingency planning

•  Orchestrate – Give goals and intent, not directions

•  Maneuver – Get out of the way, Boss! And start the cycle over

again (even before the earlier maneuver is completed)


Maneuver-Driven Competition

Slow SROM Loop Fast SROM Loop

Market Firm Market Firm

Faster SROM loops make the firm more agile in tracking the market


Modularizing Innovation Risk Two Metaphors for Managing Innovation Projects

1. All pool players act indirectly upon their playing environment

or

CAPABILITIES

POTENTIAL PRODUCTS

MARKET SPACE

2. Good pool players plan ahead for conBngencies while modularizing risk


Capability Interactions •  Resources

–  Separate projects require same capability; potential domino effect –  One capability dependent upon another

•  Complementarity if dependence is mutual

•  Communication –  Interaction with other capabilities within projects (defined by

architecture) •  Overall product integration

–  Bundled or complementary products –  Piggybacking: Two projects utilizes the same capability to develop a

common modular component

•  Knowledge –  Later projects require information (tacit knowledge, education, prior

projects or diffusion) from capabilities developed during earlier projects


Modularization Tactics

•  Time and resource buffering –  By e.g. sacrificial functionality –  Isolate inter-capability risks (e.g. Intel’s operations strategy)

•  “A, B, C” Capability Map –  Insourcing, partial insourcing/in-house experts, complete

outsourcing (Linked to real options approach) –  Utilize in combination with a ring-of-defense personnel

strategy


Plug-and-Play Processes

•  Modular, uniform architecture & common business processes –  Enables better planning (predictability) –  Provides “plug and play” personnel from each capability –  Enables off-the-shelf components

•  Give innovation workers fungible skill-sets –  Substitute capabilities –  Fungible capabilities (perhaps through cross-training)

Point is to speed up reaction time to contingencies or unforeseen circumstances


Leadership in the Age of the Innovation Butterfly

•  Leader as Architect, Captain, and Coach


Recap

•  Innovation is literally complex and is at the mercy of the “Innovation Butterfly”

•  There are ways to harness the Innovation Butterfly & shape the innovation system –  Information Scaling, Big Data & Analytics –  Agile Planning Cycles: Maneuver-Oriented Competition –  Decentralized, empowered, and aligned organization

•  But leadership is the key! –  Particularly in building the innovation culture


If you want to read more…


Questions?

We welcome your feedback … – www.EdAnderson.org


Backup Material


30 Second Pitch

•  Auftragstaktik für Geshäftsmänner


Innovation Dynamics Evolution of Benefits & Risks


Performance Gap

Desired Product Performance

Product Performance

Capabilities

Investment

Market Wants

DELAY

DELAY DELAY

Legislative Shocks

Market Shocks

Technology Shocks


Uncertainties


Biases

MARKET CO-EVOLUTION






Performance Gap


Product Performance

Capabilities

Investment

Market Wants

R

DELAY

DELAY DELAY

Legislative Shocks

Market Shocks

Technology Shocks


Uncertainties


Biases

MARKET CO-EVOLUTION

R


B


S


Market … Wants Market 3 Wants

Market 2 Wants

Performance of Product …

Performance of Product 3


Capability… Capability 3

Capability 2

Multi Dimensional Dynamics With multiple capabilities,

many products, and detached markets

CapabiliBes, Products and Markets are mulB-‐dimensional and have many-‐to-‐many interconnecBons, with goal seKng processes and delays!

Performance Gap



Capability 1

Investment

O

Market 1 Wants

R

DELAY

DELAY DELAY

MARKET CO-EVOLUTION

R


B



Capability Dynamics Evolution of Benefits & Risks


Performance Gap


Product Performance

Capabilities

Investment

Market Wants

R

DELAY

DELAY DELAY

Legislative Shocks

Market Shocks

Technology Shocks


Uncertainties


Biases

MARKET CO-EVOLUTION

R


B


S


Market … Wants Market 3 Wants

Market 2 Wants

Performance of Product …



Capability… Capability 3

Capability 2

Multi Dimensional Dynamics With multiple capabilities,

many products, and detached markets

CapabiliBes, Products and Markets are mulB-‐dimensional and have many-‐to-‐many interconnecBons, with goal seKng processes and delays!

Performance Gap



Capability 1

Investment

O

Market 1 Wants

R

DELAY

DELAY DELAY

MARKET CO-EVOLUTION

R


B



Basic Message

•  The first chapter summarizes (like most business books) the remainder of the book. So that you should give you a good feeling for the book's contents. There are about a dozen case studies in the book from videogames to pharma, and we have stolen ideas from complexity science, military science, organizational theory, and system dynamics.

The basic message of the book is: •  The innovation system is a complex adaptive system. Much like the weather, it will follow a

predictable trajectory much of the time, but then "a butterfly flapping its wings in Brazil can create a tornado in Texas." Conceptually a major difference in the innovation system is that some of those butterflies are actually under your control. For example, your product releases will affect future market tastes.

•  To deal with this, a firm has to move from looking at single innovation projects to a sequence of innovation projects (a technology roadmap).

•  It then has to plan these roadmaps using a proactive (because you can sometimes you can shape the market) and reactive (because oftentimes you can't, and it will surprise you) agile planning process. This means that once innovation leaders scout the environment, plan a roadmap, and orchestrate the actions of their subordinates, they get out of the subordinates' way. Instead of micromanaging subordinates, leadership moves to restart the planning cycle immediately, so that they will complete the next planning cycle before their subordinates' projects are even done. This turns the technological trajectory into a series of short maneuvers. The quicker the planning cycle, the shorter the maneuvers, and the better able the innovation firm is able to manage the innovation system.

•  To support this planning cycle, a number of organizational changes need to be made: Modularizing firms' capability risk, plug-and-play processes, and a decentralized, empowered organizational structure.


Basic Message

•  The first chapter summarizes (like most business books) the remainder of the book. So that you should give you a good feeling for the book's contents. There are about a dozen case studies in the book from videogames to pharma, and we have stolen ideas from complexity science, military science, organizational theory, and system dynamics.

The basic message of the book is: •  The innovation system is a complex adaptive system. Much like the weather, it will follow a

predictable trajectory much of the time, but then "a butterfly flapping its wings in Brazil can create a tornado in Texas." The only major difference in the innovation system is that some of those butterflies are actually under your control. For example, your product releases will affect future market tastes. Note that more distributed innovation (globalization, offshoring, outsourcing etc.) tends to create more innovation butterflies.

•  To deal with this, a firm has to move from looking at single innovation projects to a sequence of innovation projects (a technology roadmap). It then has to plan these roadmaps using a proactive (because you can sometimes you can shape the market) and reactive (because oftentimes you can't, and it will surprise you) agile planning process. In other words, how can you move from being Polaroid or Blockbuster to Apple?

•  We use a dozen case studies ranging from pharma to videogames to cars plus ideas from complexity science, agile project management, organization theory, military science, and system dynamics to show how to support this leadership process with innovation analytics, modular technology capabilities, plug-and-play processes, and a decentralized, empowered organization structure.




Performance Gap


Product Performance

Capabilities

Investment

Market Wants

DELAY

DELAY DELAY

Legislative Shocks

Market Shocks

Technology Shocks


Uncertainties


Biases

MARKET CO-EVOLUTION



the innovation butterfly - repository home · – get out of the way, boss! and start the cycle...

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