Solving Impossible Problems
- Posted by: Dr Robert Dew
- Category: Creative Problem Solving, Innovation, Organisational Design
The companies that survive in the long run are those that are capable of innovating because it is the only known strategy for dealing with environmental uncertainty.
The rate of change in the business environment is growing rapidly and executives are under pressure to drive growth and increase value to shareholders. If a company were in the Fortune 500 in the 1900s, it would remain on the list for 85 years on average. By the year 2000, if a company made it to the Fortune 500, it would only stay for 15 years on average.
Uncertainty is different to risk.
Large organisations evolve their management controls to deal with risk independently of their owners, but they largely ignore uncertainty. In innovation management, the difference between risk and uncertainty is that risk is quantifiable and uncertainty is not. The capability to deal with either risk or uncertainty is the defining characteristic that distinguishes large corporates from smaller enterprises. Small firms start out having to manage the uncertainty of whether or not they will survive start-up and grow. In these firms, there is an owner or small ownership group that directly manage uncertainty. However, at some point it becomes clear that the business has grown and stabilised enough to be established and profitable – the uncertainty has been substantially reduced. The firm is still not a corporate at this point and cannot scale without changing its management structure, strategy, values and procedures. Collectively these changes are all about management controls. Transitioning from entrepreneurial management to corporate management involves switching the focus away from uncertainty and toward risk. Management controls vesting in key individuals are replaced by the structures, procedures, culture and strategy needed to become a large corporate organisation. But in doing so, most companies often lose the capability to manage uncertainty because it doesn’t seem relevant anymore. Ignoring uncertainty is only appropriate in the short term. In the long term, uncertainty always increases as it is created by other firms that see new opportunities, reorganise and capture value. However, this uncertainty is also an opportunity since profitably managing uncertainty is the only sustainable way to grow exponentially.
- Growth through innovation/creativity:
Companies that do not invest in innovation put their future at risk. Business is not able to compete in the market if it cannot seek innovative solutions to emerging problems.
- Increased profits by managing uncertainty:
The underlying means to grow exponentially: profit from managing uncertainty.
- Innovate or become obsolete:
Companies that stay with known best practice and attempt incremental changes are eventually made obsolete by others that innovate.
- Survival of the most Innovative
Companies that innovate to develop the new best practice have a significant advantage in the market. Those companies are more likely to survive and flourish in the long term.
WHAT is innovation?
Classic definition: an implemented solution to a problem that is first, useful and successful. For businesses, this means the ability to design something new that has both business and customer value. Innovation gives the company a uniqueness which results in greater value and increased competitiveness in the market.
In practice, most innovation work is around creating results in the short term from innovations with returns that far outweigh the costs. This level of return is required to make up for the extra uncertainty and risk involved with investing in innovation.
Why innovation is important
Companies normally want to drive performance based on implementing best practice. Best practice is predictable: it is well understood, is useful and has proven successful. Best practice is low risk, but potentially high in uncertainty.
Innovation is how best practice evolves and it is everywhere: in new products and better services; in improved procedures and discoveries that can be patented or retained as trade secrets; in the evolution of business models; and in the changes that every employee conceives of implementing which could make their job easier, faster, cheaper, better or even redundant
However, there is always risk and uncertainty inherent in innovation. This means that even when companies engage in innovation, most would prefer to remain within best practice, especially in companies where strategic uncertainty is not considered.
Ignoring strategic uncertainty creates a fundamental conflict inside companies: managers are incentivised on best practice and incremental performance improvement; risk is managed and minimised; and the skills, values, behaviours and traits necessary to innovate within a company are filtered out because they appear to only increase risk and threaten internal alignment. In this environment, it is impossible also to be a company that is innovative. In the long run, such companies don’t survive.
Innovation and competitive success are not limited to the realm of technology or research based companies. The German firm Wurth is the largest maker of building screws in the world, with a turnover of $14 billion. Despite low-cost competition from China, the company has managed to stay ahead by innovating across its products and processes using a supplier network similar to Dell in computers and United Colours of Benetton in clothing.
Unless an organisation has the capacity to innovate, it risks being left behind as others take the lead by changing their products, services, processes, or the underlying models that drive their business.
THE BEST TIME TO INNOVATE
Businesses tend to grow on a ‘sigmoid’ curve (see below). It dips down in the initial investment stages, then experiences a period of rapid growth if the investment takes off. After a time, and impacted by internal or external effects, the curve dips down. This is when the company can fail because its last growth initiative has become obsolete and it may not have the resources to reinvent itself
The best time to innovate is on the upward trend of the growth curve. This is when businesses have the capacity to change, including the financial and management resources. The challenge with innovating at this stage is that management is very focused on exploiting growth and may frame innovation as a distraction to the firm’s key short-term objectives.
Innovating means investing in an unknown. It is expensive and there is a risk of no result other than learning. This means it is not often considered until the business is facing an impossible problem which risks a descent into a decline.
Innovate before the decline
When a company attempts to innovate itself out of a decline, the company has less ability to invest and then implement that changes needed.
In crisis, companies don’t have the necessary recourses to innovate, so it is too late.
The strategic rationale is clear. Businesses need to innovate to survive. The return on investment for innovations can be well above what the business could achieve through following best practice.
Innovating while the business is on the upward growth curve, or in a period of mature gains, means the business is more likely to flourish in the long term.
Finding the ‘impossible problem’ before the decline
There is normally a point at which the way forward is hindered and the company is at risk. Impossible problems can come from external market changes (e.g. a competitor’s innovation, the price of oil, or the Global Financial Crisis) or internally (e.g. complex processes are failing, team performance needs to be more effective).
Such problems can appear quite foggy: ‘we know there are issues but we can’t point to them directly’, or it can be clear: ‘we know what the hurdle is, we don’t know how to get over it.’ Often impossible problems exist because of constraints: ‘we know what we should do, we just can’t do it because…’
By using a combination of Creative Problem Solving, Ideation, Human Centred Design and Theory of Constraints, it is possible to ascertain where problems truly exist and design a way past them, seeding a second growth curve.
What is innovation management?
Innovation management is the system of controls that enable an organisation to design and implement risky and uncertain initiatives to develop new best practice. It includes what to do, how much to do it, and how not to do it too much. It enables the business to create potential ‘second curves’ of growth for sustainability.
Innovation management systems are useful for:
- Creating a place where creativity can happen within a framework
- Making sure that there are parameters to work within, but there is flexibility to adjust
- Understanding how to develop new products, services or ways of working
- Identifying what initiatives are most likely to generate the most revenue
- Investing in stages to manage both risk and uncertainty
- Implementing new initiatives within a learning orientation
Innovation Management includes a high degree of creativity in the Context Mapping, Problem Identification and Ideation stages of the process (below). Here, requirements for creativity are in conflict with the requirements for accountability. This is why it can be difficult to achieve with an internal team, especially in a firm with mature corporate governance.
To be creative, you need to: be intrinsically motivated rather than externally incentivised; be free to explore rather than being compelled to exploit; be trusted rather than held accountable; have an absence of well-defined targets and yet a strong sense of a desired future state; receive acceptance for doing unpredictable things rather than seeking permission to execute a plan . This seems to fly in the face of traditional approaches to corporate governance where employees are extrinsically motivated; have limits of authority, work within plans and budgets; are held accountable for KPI’s rather than trusted; and are measured on things that are predictable rather than striving for what is possible. Innovation is ‘serious play’ and innovation managers need to act like the professional athletes of business. Introducing an innovation management process plus adding external innovation expertise as the growth curve develops means the business can deal with these conflicts to succeed.
The Innovation Management Process
Traditional business managers are often predisposed to solving well-defined, closed problems. Typically, these are framed as decisions inside a known technical domain. Examples include investment decisions, contract approvals, quality audits and performance reviews. Standard consulting approaches tend to be about solving well-defined, open problems by translating known solutions to specific client situations. This is essentially adapting best practice to fit a specific context (examples include developing marketing plans, employee incentive schemes, and supply contract or improving a process by applying Lean Manufacturing, Just In Time or Theory of Constraints methods). So whereas management is commonly about making decisions, consulting is often about creating good options. Both approaches usually apply linear thinking methods. However, there are also ill-defined problems for which linear thinking does not work.
The Creative Problem Solving (CPS) process is one method for dealing with ill-defined problems (whether open or closed). CPS involves alternately applying divergent and convergent thinking processes (see the diagram below).
|C+||Map context||Research global best practice
Examine current relevant business artefacts
Survey expert stakeholders
State of the Firm Report
|P+||Possible problems||System failures
Objects and technology issues
People, relationship and factional concerns
Either/ Or conflicts
Long List of Opportunities
|P-||Problem focus||Acumen based evaluation
Delphi convergence workshops
Key stakeholder reality check
Short List of Focus Areas
|I+||Generate ideas||Left brain tools for fluency and flexibility
Right brain tools for flexibility and originality
Long List of Ideas
|I-||Idea selection||Evaluate ideas for innovation score
Analyse ideas for business relevance
Rank based on innovativeness x relevance
Combine related ideas into key solutions
Short List of Ideas
|A+||Test actions||Develop prototypes
Pilot Results Report
|A-||Action plan||Feasibility analysis
Business case approval
Project planning & metrics
Project execution and change management
|R+||Assess Results||Collect data
Evaluate KPI’s and KRA’s
Create correlation hypotheses
Consider unintended consequences
Long List of Outcomes
|R-||Results focus||Statistical testing
Lessons Learned Report
WHAT ARE THE INTERNAL EFFECTS OF INNOVATION?
Both the positive and negative effects of innovation inside a company are worth considering.
Innovation and Innovation Management per division
|Sales||New positioning; new business model; new product; new augmented product; new pivot||Existing offers could be cannibalized
Existing sales resources could become less valuable e.g. channels, partnerships
|Finance||Measure and control innovation, which you can’t normally do by controlling investment
Able to invest in risky things in a way that’s more rational
A stage gate process, internal capital markets, or an open innovation approach make it possible to leverage resources outside the firm as a way of bearing risk
|Switches from risk management to uncertainty management which may not be within the CFO’s skill set
Requires the creation of slack resources for people to use with discretion and with less accountability
Requires new control structures i.e. skunkworks/ cross functional team/ venture capital market. Those structures are decentralised, so they look more like markets – this can be personally and professionally risky for the financial controller
|People get more interesting work, more intrinsic motivation, more autonomy
Opportunity to bring a transformational and ideas centred culture into the business
|Requires large changes in organisational culture and leadership.
Leaders who are unable to drive the change are at risk of not succeeding and may be ‘found out.’
|Operations||Processes become more effective because they work across divisions.||Processes need to change. People inside the business become accountable for real results. Process owners are more exposed to performance. Bureaucratic organisations struggle.|
HOW DOES AN ORGANISATION BECOME INNOVATIVE?
There needs to be involvement from all areas of the business to make it happen.
Innovation always happens at the boundaries of different divisions of the organisation. It often occurs when two different perspectives that normally can’t be reconciled somehow are. Thesis and Antithesis are synthesized. This means that innovation management works best when it is integrated into the business as a whole, not just in one division.
IMPOSSIBLE PROBLEMS: HOW TO GET TO SOLUTIONS
Some problems within the business can be solved incrementally. Innovations that naturally occur within a business are normally at this level. They are sensible, easy to implement, and make small returns.
Innovations that create the most traction against risk and uncertainty tend to be evolutionary. This is where a company needs a tactical, operational or strategic change but doesn’t know what to change and/ or how to achieve it. The innovation tends to orient the business towards a new phase of growth. This is where most businesses should focus.
Transformational innovations are at the strategic level and redirect the focus of the entire company. These are rare and require extraordinary leadership through that shift in direction. This level of innovation can destroy a company, even if the innovation is successful. An example of this is the IBM PC. IBM pioneered its development and was a market leader, but has now exited that market as it was unable to compete against other rivals.
To design the right innovations for the business, it is necessary to have a practical map that can guide the journey ahead and capture learning. After over 15 years of working with leading businesses, Coriolis Innovation has designed an approach that delivers. By adding to existing resources; increasing innovation capacity in the entire business; and helping an organisation to make a strategic change towards growth, Coriolis Innovation helps businesses to solve their seemingly impossible problems, then continue to innovate and grow.