How do we know when innovation is necessary?

What tells us we need to change? What tells us we should just leave things as they are?

Sometimes the need for innovation – whether in terms of processes, services, products or anything else for that matter – is clear. Perhaps sales or profits have declined, key staff have left, or market share has fallen… Whatever it is, the need to innovate and do things differently is pretty well impossible to avoid. In the language of change management this is the “burning platform”: those moments when it is (or should be!) obvious to anyone that change is necessary. In such instances radical innovation – making significant and dramatic step-changes – can be a normal, adaptive response, especially if it is a response to what Christensen and others have called “disruptive innovation” – innovation that creates a new market or product category.

Yet sometimes the signals are much more subtle or indeed absent. In such situations how do we know that we need to innovate?

In this 2015 book, The Second Curve, the Irish-born management guru, Charles Handy, discusses exactly these kinds of situations. Starting with his own career, Handy talks about how – to the deep frustration of his wife – he would always move job just when things seemed to be on a very solid footing:

After ten years with Shell I had reached the small country manager stage, the first step to greater things, when I decided that the life of an oil executive was not for me, that I would rather teach managers than be one. The old saying ‘if you can’t do it, teach it’ probably applied, if I am honest. To Shell’s surprise, and even perhaps disappointment, I turned down the posting and resigned. After two years of readjusting and retraining I joined the London Business School: six years later I reached the exalted rank of a full professor with my first book published and the holy grail of tenure (guaranteed employment until retirement) granted, only to decide that it was not what I wanted to spend my life doing. That was to be a fulltime writer. It took four years in one more job to build up the courage to cut that umbilical cord that ties one to the womb of an organisation. Only then did I feel that I had come into my own. Just in time, too, or I would have ended up in Davy’s Bar. (Handy, 2015, pp. 19–20)

By “Davy’s Bar” Handy is referring to that dead-end place we – both people and organisations – can unintentionally end-up by failing to change direction until it is too late. Handy explains it in the following way…

I have often, down the years, told my story of the road to Davy’s Bar, and its imagery, along with its implications, still haunts me. This is the story as it happened then, for Davy’s Bar is no longer there: I was driving through the Wicklow Mountains, the bare but beautiful hills outside Dublin, when I lost my way. I saw a man walking his dog so I stopped beside him and asked if he could point me on the way to Avoca, where I was heading. ‘Surely,’ he said, ‘and it’s dead easy. You go straight ahead up this hill then down again for a mile or so until you get to a stream with a bridge over it; on the other side of it you’ll see Davy’s Bar; you can’t miss it, it is very bright red. Have you got that now?’ ‘I think so,’ I said. ‘Straight up, then down, until I come to Davy’s Bar.’ ‘Great; well, half a mile before you get there, turn right up the hill and that will take you to Avoca.’

I had thanked him and driven off before I realised the strange Irish logic of his directions. But its message stuck with me until I started talking about the challenge of the Second Curve, that turn to the right up the hill which you will often have passed without knowing it was where you should have gone. I have met too many organisations (and, indeed, individuals) parked in the equivalent of Davy’s Bar, having realised, too late, that they have missed the turn to the future and can only look back regretfully and drown their sadness with a mournful drink or two, while they reminisce about the good times and what might have been. (Handy, 2015, pp. 20–1)

To describe the change in direction needed to avoid ending up in “Davy’s Bar”, Handy uses the metaphor of the “the second curve”, a new and different path or trajectory we could or perhaps should choose to take before our current path starts to wane. Implicit in this is the recognition that things might still be going quite well for us on our current path and there is no obvious “burning platform” for change.Equally, Handy also recognises that when we first change direction things might be difficult and business might dip and it is only when we have progressed some way along that second curve that we can definitively say that the change was warranted.

On a certain level this might seem counter-intuitive: if things are going well, why change? This is, of course, a completely reasonable question and one that is often overlooked – especially by highly-paid consultants who have created an industry in advising managers and leaders that constant change is both desirable and necessary!

Assuming that, despite things going well, we recognise that change is necessary an initial and quite rational response might be to just make small adjustments and adaptations. This is what could be called incremental innovation – doing essentially the same thing, just continuously striving to do it better.

Take the bicycle, for example. As Wikipedia helpfully tells us “The bicycle has undergone continual adaptation and improvement since its inception. These innovations have continued with the advent of modern materials and computer-aided design, allowing for a proliferation of specialized bicycle types” (emphasis added).

We can well imagine that if a time-traveller from those early days of the bicycle was confronted with a modern version they might be intrigued by some of the new-fangled gearing and braking systems or the light-weight carbon-fibre construction – but they would still recognise it as a bicycle. If they were a bicycle enthusiast they might also scratch their heads and wonder why this is the case. Perhaps it is because the bicycle simply works as a relatively cheap and effective way to get around and radical innovation is neither necessary nor cost-effective, and just as importantly it would not be meeting the needs of bicycle users in any measurably better manner.

This kind of incremental innovation only really works, however, when there are no disruptive competitors on the horizon and when the underlying product is already pretty darn good. Further, questions of organisational context and relevance are also of critical importance. A few years ago I did some work with the leadership team of a major pharmaceutical company who had innovation as one of their top priorities. While things were objectively speaking going well, as a leadership team their instincts told them that they needed to do something – they needed to jump to the second curve. Yet that is where the difficulties began.

Perhaps not surprisingly their first response was to call in an innovation expert from a top-flight consultancy who could advise them on what to do.

Although he had decades of experience, the consultant demonstrated no genuine understanding of the company, industry or context: despite being off-patent there were no disruptive innovators on the horizon (that has remained the case), the product was already supremely effectively and had multiple successful applications, and the context of the pharmaceutical industry meant strict limitations on processes such as FDA approval for facilities etc.

The consultant’s prescription of radical and only radical innovation was consequently completely inappropriate for the organisation. It also missed the critical point that incremental innovation is a viable response and can and often does lead to significant changes as all those small innovations add up to something much more significant. In this regard, incremental innovation can function almost like an organisational form of the children’s game known as “Chinese Whispers”, “Rumour” or “Telephone”, in which a simple opening message can change quite dramatically as it is subtly (and sometimes not so subtly) changed through multiple iterations.

Naturally, however, there is no guarantee that those same incremental changes will be beneficial or even necessary. You might end up refining something to perfection without realising that it has been superseded by better alternatives. Think of the progression from video cassettes to DVDs and now streaming services: video cassettes are long gone and DVD sales – while still strong globally – have fallen precipitously as the technology has been all but superseded by streaming and online services. The only reasonable question at this point is how long will it be until streaming services are themselves replaced by something better?

So how do we approach this? How do we know we know when innovation is required and it is time to jump to Handy’s Second Curve?

While never an easy decision there are some steps which can be taken to inform a response to this question…

Scan the environment

Keep a sharp eye on what is happening outside your organisation either with competitors, regulators, markets, consumers etc. Equally, watching what is happening in other countries or markets (especially those generally perceived as leading the way) can be highly instructive and inspiring

Listen to your people

Linking perhaps to the notion of the “heroic” leader innovation is often seen as a “top-down” phenomenon. Yet it isn’t and should not be seen in that way. Engage your people and see what ideas they have for changes and improvement… you might be surprised!

Listen to your customers

Customers not only use or consume your product or service, they also make an implicit choice to engage with you and your offering over that of your competitors. Asking them why they make this choice and seeking to understand how they actually use your products/services (not how you think they use your products/services!) can be enlightening!

Underpinning each of these three approaches is one simple yet incredibly challenging concept: communication. To understand what is going on around us and to respond effectively we need to communicate and we need to communicate effectively, primarily by listening. We can never know what is going on inside the heads of others but through effective communication and especially strong listening skills we can take some positive steps forward.

Whether the need for innovation is obvious or perhaps more subtle, taking that first step can sometimes be hard to do. Through the metaphor of the Second Curve Handy gives us a useful guide to how we can view, understand and act upon the need for innovation and change before the need becomes urgent.

Laurie Knell is an Associate Lecturer at The Open University Business School and speaker at the MBA Refresher Residential 2017 event.