Innovation of Business

and the
Business of Innovation™
Innovating Your Business System

A Very Simplified View

Any business is complex… so much so that we need leaders, managers, and ranges of sophisticated tools just to keep business from running amok.  So many stakeholders to please… so many functions to balance… so many competitive pressures… so many demands for performance.  Luckily, we love the challenge.

Business is also a flow.  At its simplest, it is investment leading to return on investment that, ideally, enables funding of the next cycle at a profit.  Innovation is also a flow.  Pipelines of ideas turned into prototypes, then into products launched into external or in-house markets that produce ROI sufficient to fund new ideation and proof of concept.


Peter Senge in The Fifth Discipline argues that we must see that flow... see wholes.  See interrelationships rather than things.  See patterns of change rather than snapshots.  See structures that underlie complex situations.  Discern high from low-leverage change.  Understand dynamic complexity, not just detail complexity."

Reality is made up of circles.  Rather than cause and effect, business is cause-effect-cause-effect in continuous loops.  Rather than causes producing final conditions, they produce new initial conditions, and business cycles continue.  "Systems diagrams" help diagnose and manage complex systems.

That approach implies a change of mindset for many people.  Rather than an org chart showing the hierarchy of functions, we can see business as a set of entities connected, linked, and arranged to form an organic whole.  Entities may be at least:  Knowledge, processes, organizations, teams, resources (of all types), perceptions, and things.  Many entities within a system are systems of their own with their own multiple links.  Every system is an entity within a larger system and is therefore linked to other systems.  That is, systems nest within systems within systems.

A systems view enables structuring, leading, and managing businesses to achieve business goals by reaching plan year objectives on time, in budget, and at or above expected quality and productivity in complex and rapidly changing markets.  A systems approach is far more than an interesting picture.  It is a path to success.

The Business System

The systems diagram here is a very highly over-simplified and understated picture of business, organized around seven gaps.  Any systems theorist would want much more detail.  On the other hand, this perspective creates a context for core operating principles that apply to any and every business.  Once we capture a whole view of our businesses, we better understand how to operate those businesses.

Begin analyzing the Business System on the far right.  Ongoing and accelerating change from a wide variety of sources creates a constantly evolving marketplace which, in turn, creates gaps between where we are and where we want to be.  The most fundamental functions of business are designed to close those gaps in every plan period and to do so more efficiently and cost-effectively than any competitor.

Knowledge Gap:  We don't know exactly what customers want, what competitors will do, or what impact various market forces may have.  We constantly research the market and its technical, political, economic, and emotional factors, yet ongoing change plus delays in research mean this gap always exists.


Principle of Change
The only way to stay in control of our business
is to proactively lead into change.

Focus Gap: Business focus is typically written in vision, mission, principles, values, goals, and core strategies.  In simpler times, these would endure.  Today, we must regularly re-evaluate our corporate self-concept to maintain a proactive change-leadership position rather than a reactive change-management position.  Those decisions require both market knowledge and understanding of our own intentions.

We always face delays in incoming knowledge and time to make forward-looking decisions, so our focus is never quite on target.  The more adaptive and flexible we can be, the better we are able to address current markets.


Principle of Focus
Make conscious, informed, proactive choices about
who we want to be, where we want to go,
how we intend to get there, and how we intend to behave.

Strategy Gap:  We structure our business by investing in strategies that we expect will close all these gaps.  Strategies include anything that helps achieve long term goals by achieving plan year objectives.  We nest strategies down into departments, functions, and projects.  We seek an organization in which every action is strategic.  We know that tactical (unfocused) methods can create waste and inefficiency.

Change, however, is incessant.  Strategies must evolve, just like everything else.  Closing gaps with strategies means striking a balance between overly-comfortable stability that misses opportunities and over-reacting instability that kills market credibility.


Principal of Strategy
View every action as a strategy to achieve goals,
then carefully choose the best strategies.

Satisfaction Gap:  Ongoing change means that customer expectations constantly evolve.  As soon as we deliver our newest and best solutions, markets adjust their expectations to want more.  Competitors constantly seek to outperform us, and new technologies constantly change the playing field.  This applies to internal businesses serving stakeholders (e.g., R&D, manufacturing) as well as customer-facing businesses.

Delays in market research and product development mean we never quite close our satisfaction gaps.  Ours is an ongoing challenge.


Principle of Need Satisfaction
Conceive, develop, and deliver value to customers
better, faster, and more profitably
than any competition.

Perception Gap:  Customers and other stakeholders don't always understand what they want and what we offer.  They can't assimilate everything we tell them, and we must admit we don't always communicate well.  Indeed, we may do everything else with elegance, then blow it all with communications that miss the mark.  We may deliver products worthy of brand loyalty, yet offer messages that don't match up.

Delays in both message delivery and assimilation mean we always face perception gaps.  Even worse, mistakes may lead to undesired perceptions we must then overcome with extraordinary performance over time.


Principle of Perception Management
Manage everything done and said
to consistently reinforce
desired marketplace perceptions.

Resistance Gap:  Every step faces resistance, as represented by the counter-rotating arrows at far left.  Minds and habits change reluctantly.  We face resistance to change both inside the business and out in the marketplace.  Resistance increases costs, risks, and delays, expanding all gaps.  One solution is to see every initiative as a "product" with its own business system and stakeholders.  That is, we can innovate support for required change.


Principle of Leveraged Strengths
Discover and leverage
the full nature and power of
every key entity and process in this business.

Profit Gap:  We estimate revenues and costs, then strive to increase profits, brand equity, and shareholder value.  In the Business System, every action implies a cost, and every satisfied customer implies a revenue.  Strategic decisions determine where and how profits will be invested.

Because products are explicit and brand equity is intangible, many managers focus on making and delivering the best products with appropriate persuasions.  A better view is to see both products and communications as tools for building durable relationships.  Brand equity is worth far more than the revenues from any product or the sizzle of any product launch.


Principle of Value
Consciously structure, lead, and manage
to consistently increase the win-win value
of relationships with customers
and other stakeholders.



This system shows many perspectives.  More than one class of "customer" exists, so the whole system is multi-dimensional.  External stakeholders include at least product buyers, investors, allies, distributors, market influencers, and the media.  The same principles apply to serving internal stakeholders.

For any class of stakeholder, see the "customer" interactions as flowing in a third dimension.  That is, mentally wrap the two customer loops up out of the plane, putting changing needs and perceptions together.  Needs continuously influence perceptions and vice-versa, and we need to address them in an integrated fashion.

Management can be conceived as internal "customers" with distinct needs, perceptions, and definitions of value.  To distinguish customers from management stakeholders, fold customers up out of the plane, and fold management below.  To mentally manage larger numbers of stakeholders, and there are many, simply fold the diagram into a hyperspace.



Whole business disciplines are hidden in this diagram.  The whole value chain of product innovation and customer service fits between product strategies and complete, delivered products.  Disciplines include at least:  portfolio management, R&D, science, engineering, technology management, product development, project management, manufacturing, documentation, training, packaging, launch, distribution, relationship management, customer care, product service, and all of their sub-disciplines and feedback loops.

The whole persuasion chain fits between promotion strategies and complete, delivered communications.  Processes include at least:  websites, advertising, collaterals, direct mail, trade shows, PR, contact management, sales, and all of their sub-disciplines and feedback loops.


Using the System

Now imagine the impact of a disruptive factor emerging suddenly from the marketplace.  It changes everything.  You can see your system, yet changing every department and business function is overwhelmingly complex.  In that moment, you wish that every element of your system were somehow self-adaptive.  That the system itself would naturally adjust to new realities.

Now envision a culture built on a systems view plus the integrated principles.  Envision teams who understand change, focus, strategy, need satisfaction, perception management, value, and leveraging of strengths.  If teams at all levels own systematic commitments to those principles, change can be made throughout the organization that both reflect and compliment management initiatives.

No panaceas exist.  Change eventually obsoletes us all.  A principled systems approach can keep us at the windward edge of innovation and profitability, in spite of it all.



25. It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong. (Richard Feynman)

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