Jan 2016 - Sep 2017
Now, during this ninth module, we started: “Strategy and Innovation” – the first elective course of my Executive MBA at Oxford University’s Saïd Business School.
Our “Strategy and Innovation” module follows a by-now familiar pattern of learning.
First, we’re convinced that “Innovation” is a natural product of an equilibrium that mysteriously coalesces in the space between the “demand” of consumers and the “supply” of great inventions by great inventors. In this world: The cream always rises to the top – Marketplaces always result from great creations. It’s all about the “technology,” inevitability, and how new markets shall result from an “agreement” or “contract” between consumers and lone inventors toiling away in gadget-filled garages in Palo Alto.
Next class, we’re shown how this innovator-centric “garage-based” story of Innovation is misleading. In fact, it’s demonstrated that Innovation and the creation of new markets are most often the product of “Supply-Push” forces. Like when we’re told Apple, Alphabet and Mercedes will ensure we’ll all be driving driverless cars properly soon.
Later still, just as we’re convinced of the Supply-Push “Right View”, then, we’re brought through a tour-de-force “proof” that what we actually need to do is identify and then consider carefully all of the desired and existing “Complementary Conditions” necessary for any particular Innovation or invention to reach critical mass. We must look for the connections between such “Complementary Assets”. And in this mass of moving objects we might be able to discern some swirling patterns which might characterise our future, and the nascent markets we can grab value from today.
Generally, it’s only after some time that, for example, the first-order Design Rules for driverless cars (even if “driverless” or “car” are the right units of analysis) become aggregated into a stabilising market. At the same time, the second-order systems which will get such “cars” on the road (software and hardware) are also being subjected to intense waves of innovatory energy. At the same time, also, the third-order regulatory issues and fourth-order consumer preferences, if any, are also being fought over sometimes viciously.
Only after some time will the outcome of any of these myriad battles become visible. In the meantime, nothing is inevitable, including what if anything any of this will lead to.
Fritz Volllrath, the pre-eminent expert in spiders’ webs came to speak to us about innovation (one of Professor Vollrath’s former zoology students, who had just sold his company for $550m, had also come to speak to us recently).
Spiders each follow different algorithms, with slight variations, to build their webs of individually invisible threads. Each spider sets out on their own path, and yet to the human eye the outcome is pretty similar: a, well, spiders’ web recognisable to all (except the flies they’re intended to catch – flies, apparently, can’t see either the whole or its constituent elements the nano-metres’ wide threads).
Professor Volllrath’s insights into how to spin out university research into myriad real-world applications were fascinating: he’s helping bio-tech integrate spiders’ silk into successfully healing paralysed limbs, for example. He’s also helping defence laboratories manufacture silk boxer shorts that are resistant to shrapnel from explosive remnants of war – an innovation that particularly interested me, given that, as a diplomat in a conflict zone, I work in a bullet proof vest among land mines, grenades and other explosive remnants of war.
However, the spiders web as a metaphor for the emergence of a new market was also apt. Markets emerge out of myriad invisible paths followed by thousands of individuals and firms who design, select and execute different innovation strategies, all the while following paths that have never been followed before. Sometimes the outcome is one or more stabilising markets that can capture flies,… I mean… that can capture value.
The thing is, we only ever see the markets which have been successfully created, after the fact. We can identify attempts to create markets all around us, but we never know whether it will be successful until, after the fact, value, like flies or the morning dew, are captured so successfully that the markets, like webs, reflect so much light that we can discern their presence in the light of morning.
Yet, the work of Nobel prize winning economist Alvin Roth also shows us how to go beyond the “supply and demand” paradigm. He showed how, in the context of the Cleveland kidney donation marketplace, the value of concentrating on consciously provoking the creation of interlocking webs of all of the complementary assets required for an efficient operating chain of, say, 60 kidney donation consecutive operations. You can, he showed, create such “thick” markets consciously. Only after such consciously created “thick” marketplaces can be sustained, do “supply and demand” actually become a useful mode of assessing their workings. And once these market places are operating, wholly unpredictable and novel waves of innovation at each of their “pain points” can be unleashed.
To be continued in “What’s Inevitable About Innovation? (Part II)”
P.S. The photographs below show us before and after our Oxford University Executive MBA “Accounting” final examinations in the exam schools on High Street (Oxford students are obliged to wear “sub-fusc”: dark clothes, bowties, mortar boards and gowns for exams):
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