I recently read a very interesting book, Innovation - the Missing Dimension, published in 2004 by MIT professors Richard Lester and Michael Piore. Richard Lester is professor of nuclear science and engineering and director of the MIT Industrial Performance Center. Michael Piore is professor of political economy in the departments of economics and political science.
The book explores the essence of innovation by examining new product development in three distinct market areas: cell phones, medical devices and blue jeans. "The central insight to emerge from these case studies is that the most important capability of the US economy (and indeed of any advanced economy) -- its ability to generate a stream of new products, to improve upon old ones, and to produce existing products in an increasingly efficient way -- depends on two fundamental processes, which we call analysis and interpretation."
Analysis is essentially rational decision making and problem solving. It is the standard approach underlying management and engineering practice. "In this view, business consists of a series of discrete problems and an associated series of decisions and choices about which of those problems to solve and how best to solve them." Analysis involves a relatively linear set of steps. First you seek to define a clear objective based on market research and customer needs. Then you pull together the needed resources - human, financial, technical, tools, equipment, etc - and organize a project to achieve the objectives. The problem is divided into a series of discrete components assigned to different parts of the organization, and the solution is then obtained by bringing all the components together as quickly and efficiently as possible.
This approach to innovation works quite well when you have a pretty good idea of what problems need solving. "But where do the problems come from in the first place? How do they come to be defined? . . . Our studies of new product development led us to conclude that an important component of innovation involves a different process, one that is not directed toward the solution of well-defined problems. . . . The activity out of which something innovative emerges -- a new insight about the customer, a new idea for a product, a new approach to producing or delivering it -- is what we call interpretation."
According to professors Lester and Piore, the analytical perspective dominates the practice of management and engineering in business, the education of students in universities, as well as the scholarly literature on innovation and competitiveness. By contrast, even though coming up with brand new products, services, business models and management practices is increasingly important in today's fast changing, global, highly competitive world, the totally different interpretive approach to innovation that this requires is not widely understood or even recognized. It is innovation's missing dimension.
The book examines the role of managers in these two very different processes of innovation. For classic, analytical product development the manager is both the lead problem-solver and the negotiator or mediator who resolves conflicts among the goals of different parts of the organization in order to create the clarity needed for efficient problem solving.
Interpretive innovation, on the other hand, takes place through a process of conversations among people and organizations with different backgrounds and perspectives, until the problems can be identified and clarified to the point where a solution can be developed. The key role of the manager is therefore "to remove the organizational barriers that would otherwise prevent these conversations from taking place."
How does a manager initiate these interpretive conversations and keep them going? Professors Lester and Piore offer a fascinating metaphor. They liken the role of the manager in encouraging conversations that lead to brand new innovative ideas to the role of a good hostess at a cocktail party " . . . identifying the 'guests,' bringing them to the party, suggesting who should talk to whom and what they might talk about, intervening as necessary to keep the conversations flowing, and generally navigating between the shoals of boredom and hostility, either of which would cause the party to break up and the participants to leave."
This feels right on the mark. The classic, hierarchical organization and management style works well for business areas that change relatively slowly and that require a fair degree of control, such as finance or manufacturing. These are the areas where the analytical, linear approach to problem-solving and decision making work best. But, in most businesses this hierarchical and relatively static style breaks down when confronting the newer, faster-changing, and less well defined areas of the business, including defining and selling complex industry solutions, managing multi-disciplinary initiatives that cut across the organization, and collaborating with clients, partners, universities, open source communities and others outside the business.
For these kinds of problems, businesses must come up with more dynamic, flexible approaches such as virtual organizations and matrixed teams. These approaches are on the rise because, as technologies and components standardize and commoditize, most of the opportunity for innovation, revenue growth and profits will be in market-facing solutions that by their very nature require an open, collaborative and multi-disciplinary approach.
Businesses and managers usually struggle with such constructs. Unlike a traditional hierarchy, you cannot tell people what to do, because they usually don't work for you and, most importantly, you really don't know what to tell them. After all, if properly chosen, the assembled team is supposed to be a collection of experts in their areas, so they should be the ones coming up with the answers. This frustration is exacerbated by the fact that most management education, both in businesses and universities, is oriented toward classic, hierarchical organizations. Where do you learn the "good hostess" style of management needed to lead matrixed, virtual teams?
I am struck by the similarities in the requirements to support the kind of interpretive innovation that arises out of the conversations and interactions of communities, and the rise of social networks. As the Internet and Web 2.0 capabilities have become an increasingly effective platform, enabling people to organize into online communities of all sorts, social networks have emerged as a major force in the marketplace. Blogs, wikis and different kinds of collaborative software are helping large numbers of people connect, interact and find each other online. They help communities self-organize into areas of common interest, from finding kindred spirits with similar interests, to developing open source software, to sharing knowledge in blogs. The interpretive style of innovation will become increasingly important as social networks continue to proliferate and as the technologies enabling them continue to improve.
Professors Lester and Piore are concerned that at the same time that the creativity inherent in interpretive innovation is more important than ever, competitive pressures favor the more analytical style of incremental innovation, with its shorter-term emphasis on improving productivity and costs. You need both. "Productive societies, to sustain themselves, must be both efficient and creative. The two attributes do not coexist comfortably. The balance between them must in fact be continually reassessed and recreated, especially in periods of rapid economic change." I could not agree more.