Innovation Series: Part 1 – Foundational Concepts

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Over the next couple of weeks, I’d like to share with you my frameworks, concepts, probing questions and guidelines for finding ways to innovate. How to map out the current value-chain and systematically think about the best way to innovate. How to think about time and money in driving innovation. How to introduce a new innovation into an organization or a customer base. How to create a culture of innovation.

For this first article, I’d like to focus on the foundational ideas and principles that serve as building blocks to the rest of the series.

Time|Money -> Value
The most foundational principle is the relationship of time and money, also described as value. For different types of buyers, this relationship will be defined differently.

For a large portion of the middle and working class, they value money more than time. They may not be able to afford a certain, elegant piece of furniture, for example, but give them the tools and knowledge, and they will gladly spend several hundred hours creating their own elegant, high-quality piece of furniture.

At the other end of the spectrum, wealthy individuals, busy executives and business entities value time much more than money. One of my mentors, Alan Weiss says, “I can make another dollar, but I cannot make another minute! Once a minute is gone, it’s gone forever” Retaining a personal tailor for custom suits is high-ROI for a CEO. The transaction time is minimal, the personal service is high. The CEO’s time is incredibly expensive and scarce compared to the cost of the personal tailor.

Similarly, a corporation’s existence is to provide a return to shareholders, and maximizing the efficiency of time is much more critical than the allocation of dollars. A dollar today is worth more than a dollar in the future. For example, if I can shorten the average sales cycle from 9 months to 6 months, I can achieve a higher yearly sales volume. The monetary value of the contract stays the same, but the time is substantially reduced creating higher value.

The Buyer/Seller/Offering Ecosystem (micro)
It would be nice to be able to think that business could be fueled by simply providing something valuable to a customer and charging a fair price and doing that forever. However, nothing is that simple is it?

Every component of the equation, from the buyer, to the seller, to the product or service, is governed by a lifecycle. Each component responds to outside forces and trends and obeys the laws of thermodynamics, namely [tooltip tooltip_content=”lack of order or predictability; gradual decline into disorder.”] entropy[/tooltip] .

From the buyer’s point of view, they have a problem that they need solved or a desire that they need met. There are usually multiple solutions from various sellers that might fill this need, with each solution a bundle of compromises to the buyer’s core need, but close enough to cause a transaction to occur. This needs versus the market shifts constantly and rarely stays static for long except in strong monopolistic markets.

The lifecycle of the product or service includes its creation, packaging, distribution, marketing, transfer of ownership, type of ownership (bought outright or rented), life expectancy, maintenance needs, retirement and residual value. The components that make up the final product or service are themselves made up of smaller components that have a lifecycle. An innovative product could be composed of multiple components that are very mature. Or a mature product could be composed of many newer innovative products.

From the seller’s point of view, they ultimately need to return a premium on the investment they have been entrusted by shareholders. They must position their offerings in the market to attract the highest return. There are parts of the system internal to a seller’s system that is valuable only to them and not to the buyer, even though the buyer will eventually reap the benefit.

The Economic Ecosystem (macro)
Here we have the general trends and market forces that affect all micro ecosystems. With the recent elections, there will be changes in regulation, corporate and individual taxes, healthcare, domestic and international trade, domestic and international manufacturing, etc. There will be population and demographic changes based on new laws with respect to immigration and elections in other countries such as Britain, France, South Korea. There will be widespread changes as personal and commercial transportation is transformed by the innovations in mobile technology.

Summary
In order to innovate, you need to be able to break the system down into it’s component parts and understand how the whole system is effected by it’s parts. It’s an grand ecosystem, not a closed system. If you map out the healthcare system, for instance, there are multiple opportunities for innovation due to change. The buyer-payer-user model is screaming for a more cost effective way. Mobile technologies are enabling remote preventative medicine not only within the US, but around the globe. 3D, virtual and augmented reality are quickly becoming mainstream with enough computing power to actually make a difference. In the next article, I’ll talk about mapping out the value chains. You must first map out the value chains before you can determine how to best create new value. Innovation is creating new value. If you are not creating new value, stop.

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