Monday, January 29, 2007

Stages of Maturity - Innovation in Organizations

Consider the following comment, from Jaime Green, NPower Seattle Director:
“NPower was founded here in Seattle, and the first 3-4 years, our innovation was around that startup energy, where you're inventing everything, including things that other businesses know how to do. The kind of time that you dedicate to innovation, build before you codify. But now we're moving into a stabilizing life cycle, what things we want to maintain stability around, but how to balance that with maintaining stability. Where do you prioritize, staying flexible, and how do you dynamically manage that flexibility? Get your bills out on time, the way that you deal with customers, so it's a dual challenge.”

Organizations can be tracked on an evolutionary path in terms of their innovative behavior. During the early days, the organization will likely be quite small and will be focused on getting the operations started. During this time, the focus of the organization will be to try and leverage the collective know-how of the personnel and transform these into products and services of interest. Early on, the amount of innovative behavior in the firm will be high. The entire focus of the organization will be to disrupt incumbents in the industry to carve out a niche for themselves. Moreover, the need to make an impact in the industry will be the overriding concern and will be the driving force behind the creative spirits. It is common to see organizations in this mode of operations go after almost any option or opportunity so as to showcase the skills possessed by the organizational members.

Over time, the organizations that move out of this early phase of rapid response and organizational shape-shifting have identified their core competencies and have carved out a niche in one or at most two products or services. The next phase that the organization will enter will be one of thriving on being flexible. Here, the focus will be to reuse the knowledge and experiences captured in products and services and reaping the benefits of reselling these to multiple parties. Moreover, the organization will be able to stretch the range of their operations and in doing so extend the scope and scale of the efforts, most notably the efforts in distributing products and services. So, for example, if the organization was first serving only ten clients, the focus of this stage will be to scale up to serve thirty or forty clients. It is important to note that here the focus is not so much on product innovation, but on process innovation, i.e. scaling the business processes to extend the reach of the firm. This line of thinking will be apt for only a short period. The reason is that soon there will be new firms in the marketplace, who will be trying to overthrow the firm, in the same way that the firm entered the market.

Hence, the organization will move to the third phase – adaptation. Here, the firm will focus on trying to imitate the work of the newer firms and respond to them. The focus here is not so much on scaling the product or service delivery efforts as was the case in the previous stage, but to quickly add components to the current offerings so as to keep them from obsolescence and prevent the loss of market share and clientele. During this time, the organization will realize that they need to go back to their bread and butter, the things that got them into the business in the first place – product innovation. So, efforts in the area of product innovation will start to be commissioned again, albeit in a reactive manner, based on competitors and market research.

Organizations that make it through this stage will enter the stage of exaptation. Expatation is a term borrowed from biology – it means the ability to use your existing features for novel functions. In business, that means using existing assets to create or apply to new markets, products or services that you did not know existed before. Organizations similarly will be able to innovate using their existing resources in novel ways – they will develop breakthrough innovations, most often in the context of new products or revised business models here. The challenge for the organization here will be balance between its current size and the difficulties in innovating with the large size. This is why the concept of exaptation is fitting here. The organization probably cannot shrink back down to a small size or reverse the clock. Hence, it is important for the organization to use its current structure and yet seek ways to innovate. The final stage in the model is where the organization displays agility in terms of its innovative capabilities. This will occur if the organization can sustain its capacity to innovate on a continuous basis.

There are risks is moving through the phases noted above. Most organizations get trapped in the stage of flexibility. The reason for this is that the organization has just expended a great deal of energy getting through the stage of operability and now would like to take a breather and reap the benefits of the original inventions created during the initial stage. Moreover, a comfort factor sets in as the organization realizes that it has carved out a niche, and now they do not have to consistently innovate to continue the business. Instead, they just have to scale up to redistribute the invention to as wide of a scale as possible. Failing to address that task seriously and with respect for the innovative capacities that the organization was built upon leads to stagnation at the flexibility stage. The other risk is that when organizations get trapped in the adaptability stage. Organizations may just try to imitate and continuously try to keep up with their competitors rather than work to redefine the competition. Most organizations are fearful of conducting exaptation as there is a great risk that they might fail and lose everything they have created.

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