Michaël Haddad / Chairman, X Open Innovation, Applied Optics & Algorithmics Pole Manager, L'Oréal Recherche & Innovation / 2016-03-01
What are the triggers of an innovation project? Though there is extensive literature on innovation management, what exactly drives innovation remains unclear. And yet, it is a fundamental issue, considering that the future of the firm is at stake. Who should imagine this future and take the responsibility of initiating projects? R&D, marketing, prospective teams? There is no single answer. But a full range of business cases illustrate all three models.
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There are as many definitions of innovation as articles on the subject. Notwithstanding, everybody agrees that an innovative product or service must be new in a market segment or in a given area and it must provide a discernible value for its users, whether this value is monetary or not.
A distinction is often made between different intensities: incremental, breakthrough and lightning innovation. One can also embrace the perspective of the manager who will try to determine the dynamics of innovation: is it pushed by technological progress or pulled by uses?
The technology driver
Technological progress and innovation have long been closely associated. Innovation can arise from the arrival of a new technology or from the convergence of two or three existing technologies. The deployment of information highways, for instance, was based on two strategic inventions – fiber optics and laser – whose scientific principles were known but that needed to be combined and improved in order to produce an innovation that consisted in carrying a signal with minimal loss and distortion over a long distance.
Driving innovation by relying on technological development is thus a reasonable approach, which can often prove very effective. Take pharmaceutical industry for instance: in this market where major criteria (number of patients, prices, payment terms…) are well known, a complete procedure for technological development, partly outsourced to public laboratories and startups, is in place, perfectly punctuated by critical phases (in vitro tests, clinical trials…).
Innovation here is organized around R&D and animated by teams of scientists and engineers. This doesn’t exclude unforeseen changes of direction. But even if the therapeutic target changes because some unexpected effect suddenly becomes more interesting than the main effect – as for the original Viagra by Pfizer, developed to treat angina – driving the project from technology is still a valid stance.
This is the case in many sectors, especially those that need several years, even decades, to develop a product. The most emblematic sector is of course spatial industry: its methods have spread into other industries. Following aeronautics, many industrial companies have adopted the TRL scale (technology readiness level) designed by NASA to manage its projects. In a world of engineers, the huge advantage is the clarity and simplicity of management, which leaves little room for uncertainty, with clear GO/NO GO steps before investment and clearly identified deliverables.
Furthermore, a technological innovation project often leads to inventions that can be protected by patents. These allow to set up barriers on the market in the face of potential new entrants that aren’t able to copy the innovation. Thus, the pioneering firm can buy time to amortize their R&D effort and create a strong market position.
In these circumstances, it is understandable that innovation is also often associated with technological change. It is quite amusing to see that, in Sid Meier’s Civilization game, which simulates the evolution of humanity from ancient times to the modern world, innovation often means hiring more researchers or increasing the R&D budget. In real life, we often see that the R&D/sales ratio is often the criterion to quantify the innovative nature of a company. It also became one of the objectives identified by the European Union in its Lisbon Treaty, which seeks to promote innovation.
Beyond the simplicity of calculation offered by this shortcut, the issue of controlling innovation is also simplified, favoring an engineering approach. This kind of approach is probably the best in a planned economy, driven by public procurement, hardly prone to competition, as was still the case in the 1960s, 1970s and 1980s. In the United States and the USSR, it was the era of space exploration and the development of nuclear energy. In a country like France, it was the period for big plans: TGV, Concorde, A320, Minitel… All these achievements marked the golden age of engineers. The book TheInnovators by Walter Isaacson also recalls the importance of technology developed in large structures, starting with NASA, and the surge of innovations that led to the Internet and the digital revolution.
But the following decades have shown the limits of an engineer’s approach to innovation. Not only because the most innovative sectors were based, as we shall see, on another logic, but because technological progress does not always translate into innovation. Thus, every ten years, we witness the appearance of a new “super carbon technology”: fullerene (buckyballs) in the 90s, carbon nanotubes in 2000s… which ultimately lead to nothing. Today, there is a lot of excitement about graphene, but its applications remain unproven. Nano-carbons are not necessarily a dead end but without a clearly identified profitable implementation, they won’t find their way.
Laser is a major technology today but during a long time, its possible applications were unclear. Many non-relevant projects were abandoned before finding a field in which laser brought a competitive solution.
The TRL scale was devised by NASA for the technical management of large-scale projects without market issues. But today, the so-called technological support is simply not enough to ensure the success of an innovation.
Uses-driven innovations
One may then take the problem from the other end by checking first whether the new product or service will find any customers at all before its conception, no matter which technology is used. This is the realm of marketing: if I ask my customers what they want, if I design it, if I determine a fair price, if I am able to ensure a good promotion and distribution, the success will be guaranteed.
This method has obviously borne fruits. There are also limits to this approach: by overlooking the creative role and delegating it to the customer, it produces mainly incremental innovations. In effect, “lambda” users crave for more beautiful, lighter and more efficient products or a faster service, delivered at home… but they lack knowledge of the regulatory or industrial constraints. The customer suggestion box is often filled with infeasible projects. Conversely, as they don’t know anything about emerging technologies, they cannot foresee technological breakthroughs. The iPhone is emblematic of this bias. At a time when nobody imagined a telephone without physical keys, based on the world’s leading models by Nokia or Blackberry, the democratization of the use of a touchscreen that removes the keyboard to offer a much larger screen, an enriched multimedia experience, could only come from designers and engineers seeking to design quirky products. Breakthrough innovation is always led by “professionals.”
However, other less fundamental problems, linked to a daily routine or a specific practice during a period of our lives, also need solutions and are sources of inspiration for innovation. This is where the tip of Maslow’s pyramid (which represents the hierarchy of human needs) can prove quite useful.
In 2001, Nick Woodman, a young, unemployed Californian wanted to capture his own surfing activities on camera. He decided to build by himself a shock and waterproof camera that could be fixed around his head and body with straps. In 2005 he created Woodman Labs, which later became GoPro. Ten years later, his firm made nearly a billion dollars in revenue. This adventure illustrates the typical case of innovation by use, one that emerges from need, in a favorable ecosystem, California, on a niche market. Presumably, neither technology nor the business model, nor even the presence of barriers to entry appear to have been the cause of the “GoPro” phenomenon. It is the combination of a well-designed product, responding to a specific use, a “guerilla” marketing strategy that invites users (extreme sports) to endorse the role of opinion leaders, creating a mass phenomenon by democratizing its use.
The willingness to change a use can also act as a trigger. Electronic cigarettes for instance are presented by some doctors and many users as an effective means of quitting smoking. The use of a toxic product is replaced by a product considered less harmful for health and the smoker’s environment.
Living labs or test labs, collaborative innovation with customers – something Lego does – and the use of social networks rank among the many new, digital tools used to assess an idea. Corning caused a stir with its video A day made of glass seen by over 25 million people on YouTube. The aim was to test the general public’s interest in innovations yet to be accomplished using glass.
The designer’s role, the creativity and ability of an organization to offer customized products or services and target niche markets (depending on the so-called “long tail” model, popularized by Chris Anderson) are key success factors in innovation by usage, in which technology is secondary.
The digital revolution is an excellent illustration of this logic. As noted by Henri Verdier in an interview with ParisTech Review, “digital technologies were already available in the 1950s, for IT and telecoms, and the first version of Internet appeared in 1971. But the real revolution occurred much later: it affected interfaces and ergonomics and played a crucial role in the general public’s access to these technologies. Take Apple and Facebook, two great actors that changed the world: innovators at the heart of these adventures are not working on technology as such. These are visionaries, able to imagine and implement new uses and new forms of exchange.”
This vision of an innovation driven by use is now central. Europe itself rethinks its policies and begins to promote a quadruple helix model: after businesses, academia, public authorities, individuals also play a crucial role…
Societal challenges?
Are there any other levers? To project ourselves even further, we will look beyond individual uses in order to serve a great cause. Indeed, why not think big and try serving the world by seeking to solve the major challenges that humanity must or will face?
Some societal issues affect all economic sectors and actors whereas others respond to global needs such as the depletion of resources related to the population increase, global warming and the need to produce low-carbon energy, or the production of proteins to feed the world. Other societal issues target rich countries where demand is solvent such as silver economy or customization (self-esteem, social recognition).
The identification of these issues sets the driver of innovation on the long term and attracts investors, drawn by the mass market and worldwide possibilities. “Political correctness” and the culture of consensus are predominant when it comes to mobilizing public support. Nevertheless, history is littered with examples of significant failures. These include the unbundling of the local loop in Europe and the Internet bubble in the 2000s: a lot of money, many operators for an ever-increasing number of customers… This all ended in a complete collapse in 2002.
Another example is the current crisis of opticians in France, despite an increased aging of the population (and a greater prevalence of presbyopia). Even if the market in which they operate had an overall growth of 3% per year over the last ten years, the number of stores increased by 5% per year and thus, in the absence of barriers to entry, the ruthless competition drove down the sales per store and triggered a price war despite the good economic health of the sector. This had serious consequences for upstream actors such as manufacturers because of the decline in investment. An external strategic analysis, such as a Porter 5+1 forces analysis, is crucial in order to respond to a social issue.
Another example: the Green Tech investment funds in the United States failed to deliver the expected returns. To understand the weakness of the “social issue” approach, one must adopt a strategic attitude. If a potential market exists, it is also widely shared and the number of actors sharing the cake grows faster than the cake itself (like for opticians and the Internet bubble). The cake can even prove insolvent or be maintained by public funds (Green Tech). Sometimes, like for Big Data, the business model remains to be found and innovative work needs to be done… Everyone has in mind the Google model, a great innovation in the area of online advertizing: but another model still needs to be found, this one is already taken!
The same applies for the Internet of Things (IoT). For a company, it represents a good opportunity to implement features (Wifi, 3G/4G, BLE …) otherwise very difficult to charge the customer for; it also promotes the development of a software distributed for free on App Store and generates a data rate usually already included in the operator’s bundle… In short, IoT doesn’t generate a financial inflow: it might be a key of customer relationship, but right now it is also and primarily a source of expenses.
Societal issues are an Eldorado whose location everyone knows. Following that path leads to a fierce competition. During the gold rush, hardware stores were the ones that really made a fortune, not the prospectors.
One thus understands why, since the publication of the Business Model Canvas (see bibliography), innovation in the business model has been the object of a renewed interest. Indeed, understanding the value chain allows better positions to capture the maximum. With innovation by societal issues, the concept of driving innovation takes its meaning because of many pitfalls.
Besides the value proposition for the customer, the aim is also to focus on the return on investment for the organization that will take risks and invest in the innovation project. Sometimes, organizational innovation or a change in business model can quickly bear fruits. Historically, Xerox was one of the first to transform its business model in order to capture new customers. By leasing its copiers, instead of selling them, the firm changed its value proposition and its business plan. This requires more equity but drives more stable revenues and easier cash management.
Some SMEs such as Charlott’ lingerie drew from the “Tupperware” model of demonstration-home sales, and were able to significantly improve their margins by reducing fixed commercial expenses and storage costs.
Via a reflection on the business model, relying on strategic partners and questioning customers also opens the field of innovation to a social purpose. Many firms, such as Renault, Danone or Essilor, following Navi Radjou et Muhammad Yunus, support the concept of frugal innovation, seeking to entice non-consumers by developing inclusivebusiness models around a rather wide-range offer, instead of an elitist one, reserved for privileged socio-professional categories. The key is to aim at the “bottom of the pyramid”: a trade off between smaller margin and a much greater number of customers will generate growth in revenue. This innovation is made possible through intermediaries (NGOs) involved in the distribution and promotion of goods for humanitarian purposes, without payment. The introduction of short circuits can also achieve a profitable balance by optimizing logistics.
The value of these social innovations is not just monetary, as many prestigious higher education institutions have well understood. By offering course contents freely via MOOCs (Massive Open Online Courses), without delivering any diploma, they give away a great value but quickly acquire a worldwide reputation. The École Polytechnique, via Coursera, reaches out to the African francophone population it never would have attracted in its classrooms in Palaiseau anyway.
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The different drivers of innovation – technology, uses, societal issues – define different approaches, different modes of operation, more or less relevant depending on the situation.
Driving innovation in these conditions is a challenge that shouldn’t be underestimated. The field of innovation management becomes tremendously complex and requires many cross-disciplinary competences. Specific positions such as the Chief Innovation Officer –i.e. neither the head of R&D, nor of marketing, nor in charge of forecasting, nor even related to intellectual property – are often a sui generis case within the organization. This type of position, like that of the sustainable development manager a few years ago, is not necessarily intended to remain indefinitely within the organization: they have a missionary function and are programmed to disappear once the concept has been disseminated among all employees and all company procedures. Ultimately, one can imagine that the function of Chief Innovation Officer will be linked to that of head of strategy.
Beyond specialized functions, whether transversal or not, the entire company needs to own the spirit of innovation in order to contribute to the development of innovative goods and services. An educational book by Albert Meige introduced the concept of “innovation intelligence” and showed that any company that doesn’t innovate, based on a market of knowledge, takes the risk that its goods and services will be considered as mere commodities, without any significant competitive advantage or margin.
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