Rob Morgan Delves Into Academic Theories On Innovation

Girls in STEM Mentor jan Choudhury

by | 14 Jun, 2021 | Untapped Thinking

We were delighted for Rob Morgan, Sir Julian Hodge Chair and Professor of Marketing & Strategy, to join us on our recent Innovation Gym Webinar. His academic insight into the world of asset mining is fascinating. We’ve pulled together some of his best quotes from the webinar as he delves into research findings, empirical data and academic theories on innovation.

A business case and an organisational case for innovation

The evidence is clear on asset mining from the empirical data: it’s not the size of the asset-base but ‘how’ it is then orchestrated that creates differential advantage for firms in competitive product-markets. We see this consistently in our data across time, industries and asset class.

There are two cases for asset mining: the business case and the organisational case

There are two cases for asset mining: the business case and the organisational case.

The business case is straightforward. When we generalise from all the management practices a business can engage in, asset mining to deliver innovative products to market consistently deliver greater elasticities than any other option. When we examine these innovative practices we find they deliver a 22% performance advantage according to Nick Bloom, Stanford Professor in the department of economics and at the Graduate School of Business. This is a significantly greater return than similar investments in human capital and twice that for information and communication technologies – yet firms spend a disproportionate amount of effort improving these capabilities often at the expense of innovation.

From an organisational case, the knowledge spillovers created from asset mining don’t always realise an immediate return and so often innovation outcomes are seen as a ‘black box’. There is clear evidence that if firms both explore new innovations while exploiting existing innovations performance improvements follow. However, there is a time lag in this relationship as employee behaviours, cultural norms, incentive structures, etc evolve to support these innovation inputs. Rarely, nowadays, does any strategy deliver so-called ‘sustainable’ competitive advantage and this is seldom immediate. At best, we seek temporary or transient competitive advantage. The key factor driving these windows of advantage then is innovations that are brought to market constantly driving new points-of-difference in the market and triggering customers’ switching behaviour. Developing these organizational factors and context that support asset mining is imperative to the conversion process from great ideas to innovative products.

Asset mining constraints when it comes to innovation

Asset mining constraints when it comes to innovation

The metrics for asset mining aren’t always clear – in fact they seldom are. However, the process constraints sure are! We see all too often competitors mimicking each other in process as well as the products they bring to market. This is especially the case when economic conditions are challenging or competition is fierce. It’s ironic that times like these we would expect to witness significant innovative behaviour but it is rare and sporadic – or at least this is what we have observed in the competitive markets we have studied over the last forty years. What is critical is creating more clear and immediate metrics and understanding the cause-effect relationships between innovation efforts and their returns. Also, given that innovations are characterised by both novelty and meaningfulness we find that effort is often spent on the costly and high risk novelty of product technologies while insufficient attention is given to their meaningfulness to solving customer problems. Meaningfulness is too frequently overlooked in favour of novelty. The former typically costs a fraction of the latter.

The juxtaposition of exploration space 

The juxtaposition of exploration space

Meaningful innovation often comes about by creating a culture of innovation – “the exploration space to be creative”. However, studies indicate that ideas truly are getting harder to find. Again, Nick Bloom and his colleagues recently wrote in the American Economic Review that whilst R&D effort is rising substantially, R&D productivity is declining sharply. For example, the oft-quoted Moore’s Law predicts innovation development capacity over time – nowadays the number of R&D specialists required to achieve the famous doubling of computer chip density is more than 18 times larger than the number required in the early 1970s. 

Beware when capabilities become rigidities – ‘the capability trap’

There is systematic evidence that in most product-markets we find that ideas are getting harder to find. One of the reasons for this is that managers often looking at their customers through the lens of their product suggesting that they have gained deep insights of their customer base but their view of their customer is clouded by the product currently being provided, thereby limiting new and adjacent opportunities for innovation from asset mining. Another reason is firms encounter ‘capability traps’. While organizational capabilities are desirable, this is only the case until they lose value. Once this occurs, firms can become trapped by being good at something that has lost its relevance, currency and strategic value. Worse still, these former capabilities can prevent or limit the firm’s ability to respond to new and innovative opportunities – here the core capabilities have become core rigidities. 

Watch the entire webinar here, and to discuss an Innovation Gym session for your teams, email ontap@untappedinnovation.com 

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Written by Rob Morgan