Nick Carr on Categories of Innovation

When Nick Carr speaks, Spooky Action listens.

The Business Pundit alerts us to an interview in StartupJournal with Mr. Carr regarding innovation. You'll never guess what he says! Actually, you probably can already figure out what he'll say. My first post here at Spooky Action lauded his "I.T. Doesn't Matter" article. We're both skeptical of management fads.

Carr's take on innovation is that a fetish of innovation, in which all areas of a business must be innovate, is a bad thing.

"One good example is if you look in the personal-computer industry at Dell and Apple. Dell's having some problems now, but it's still the most profitable PC maker and has been for some time. Apple is doing very well with a different strategy.

You look at those two companies and you see that Dell has been very aggressive as an innovator in its basic processes, and particularly [in] finding ways to reduce costs as low as possible. But it hasn't been an innovator in the product itself. It's in fact very much gone the commodity route, which up until now was a very powerful strategy for it.

Apple is almost the mirror image of Dell in that it has been very good at copying the process side [by] looking at what companies like Dell have been doing, and then being a very aggressive innovator on the product side, trying to get distinctive products out there. Both have been successful by being very focused in the way they innovate.

A company like Gateway tried to do both. It tried to innovate in its products and get differentiated products, and it also tried to innovate in its processes. It even tried to innovate in its retailing strategy and tried to roll out a bunch of services as well. By innovating so broadly it didn't actually create any competitive advantage and ultimately struggled enormously and fell behind those more disciplined innovators."

Here, here!

Carr highlights that there are different types of innovation; the two most common being product and process. As with the strategic value of I.T., Carr points out that first-mover advantages are often elusive, citing the wild success of the iPod despite the fact that it was not the first product in the category.

I don't have much to offer with respect to product innovation. Others cover that much better than I can. On the process side, one key to success is picking the right processes to change. In the original post regarding Carr's ideas, I stated that there are two broad categories of processes: Asset processes and Liability processes.

"The objective of any organization is to provide something of value for which other parties (customers) will be willing to make an exchange (usually of money). Business processes that create and deliver customer value are called core, or asset, processes. Improvements to these asset processes generally improve top and bottom line performance, but not always.

An organization also has a set of processes that do not create and deliver customer value, but are necessary for the care and feeding of the asset processes. These would include hiring new employees, the annual budget process, governmental compliance reporting, and IT infrastructure management, to name a few. These processes are known as context, or liability, processes. They are called liability processes because that is what they are to an organization, because they. only get noticed when they break down. The only way a company’s payroll process can affect customer satisfaction is if foul-ups create disgruntled employees who degrade the quality of the asset processes. Nobody’s going to be walking around with extra spring in their step because their direct deposit hit at exactly 12:00:00 a.m., for the exact correct amount!

Improvements in liability processes can translate into improved bottom line performance, but not in strategic advantage. The management strategy for these processes thus becomes to run them at the ‘rest practices’ standard of performance, while continually improving the cost efficiency of the process. Where have we heard that before?

So I.T. can be used for strategic advantage:

1. IF it improves an asset process
2. AND IF an organization has the right management team that will subordinate their own personal interests to the benefit of the entire organization
3. AND IF the organization has hired employees with the capability to adapt to the process changes successfully and invested in the change management activities necessary to facilitate those changes."

Substitute the word "innovation" for "I.T.", and I think the advice applies equally. Do go read the whole interview!