Evolving the definition of innovation

beneficiary-focussed helps make progress improves minimised-resistance offering resource coordination scalable sustainable co-creation of value value proposition

The Big Picture…

The innovation problem stems from how we define innovation.

We need a better definition of innovation. One that moves away from seeing manufacturers creating value and exchange focus. And towards one that puts helping beneficiaries make progress as key. Where Jobs-to-be-done theory comes naturally and co-creation of value are upfront. Let’s free ourselves from repeating the same tired approaches, that lead to disappointment.

"Insanity is doing the same thing over and over again and expecting a different result." – why keep trying to innovate using a definition of innovation that leads to the innovation problem? Let's fix that! Click To Tweet

Here’s my definition. And it comes from using a service-dominant logic lens to build an actionable and modern definition.

Innovation is creating and offering a new (to the organisation, market/industry, or world) value proposition:

  • that helps the beneficiary make progress
    • better than they can currently
  • that improves during, or as a result of, the naturally occurring value co-creation
  • which is delivered through the scalable and sustainable co-ordination of skills and resources (often across an ecosystem)
  • and where resistance (postponement, rejection, or opposition) is minimised

And I would use the same definition for digitalisation (which is, simply, innovation where the value proposition is digital).

We know that we have an innovation problem with, for example, 94% of executives being disappointed with innovation performance. One reason, I suggest, stems from how we define innovation. We repeatedly take a very product-dominant logic approach – a pure focus on output and one off transactional sale to maximise return for the manufacturer.

Let’s look at how we got to where most innovation consultants and books are today. And then see where we should be instead (if you want to get there straight away, click here!)

Where are we today?

Today’s typical definition of innovation includes three aspects. Innovation:

  • is a process and an output
  • that creates something new/novel (where something could be products/goods/services/processes)
  • has value (embedded by the maker)

Over at Idea2Value.com, they summarise 15 innovation experts’ definitions. From that, they find 60% include “having or executing the idea” yet only 40% noted value to customer or business. And Edison, bin Ali and Torkar (2013) studied innovation in the software industry and found 41 (!) separate definitions of innovation. They identified two that stood out as being best, from the OECD and the European Commission, which I have copied in Figure 1.

Figure 1: Two example definitions of innovation

As we move through 2020, the Oslo Manual has been updated to the 4th edition. And the definition of innovation has evolved into that shown in Figure 2.

Figure 2: Definition of Innovation according to The Oslo Manual, 4th Edition (2018)

And ISO, the standards body, has produced a definition of Innovation in their ISO65000 series (too expensive for me to buy, though the definitions are aligned with the Oslo manual). Alice de Casanove, Chair of the ISO technical committee responsible for the standard, has said:

Innovation is about creating something new that adds value; this can be a product, a service, a business model or an organization. And the value that is added is not necessarily financial, it can also be social or environmental, for example”.

Alice de Casanove

Finally, let’s go back to the “father” of innovation. According to Schumpeter, 1934, innovation comes in five types:

  1. launching a new product or a new species of already known product;
  2. applying new methods of production or sales of a product (not yet proven in the industry)
  3. opening a new market (the market for which a branch of the industry was not yet represented)
  4. acquiring new sources of supply of raw material or semi-finished goods;
  5. driving a new industry structure such as the creation or destruction of a monopoly position

So, What is the problem?

The problem with all these definitions is that they look at innovation with a divide between producer and consumer (or manufacturer/customer). One creates value, the other is seeking it and using it up/destroying it.

The impact of doing that is we frame definitions through the lens of goods-dominant logic. That is to say, we:

  • naturally focus on producers/manufacturers creating (embedding) value
  • begin believing all innovations are good and valuable
  • rely on the concept of value-in-exchange – a transactional approach that sees value as maximising cash for the manufacturer at point of sale

This should not be surprising. Gallouj and Weinstein found, in “Innovation in Services“, that we have based most of today’s innovation theory on technological innovation within manufacturing companies. And so a goods-dominant logic perspective is rather natural.

However, that brings along several issues. Amongst others, it:

  • makes us myopic to solutions – we want to add yet another razor blade.
  • raises the risk of our innovation efforts being based on the benefit to the manufacturer/producer rather than the customer.
  • minimises us building relationships with customers (our lead times are long, ability to pivot is low, and anyway we are too busy chasing the next exchange/sale).
  • prevents us from seeing what the customer does with the innovation after the point of sale. The circular economy, for example, is not interesting to us (why would it be? We’ve exchanged, and making a new exchange when you’ve used up the value is good for us…). Or in job-to-be-done theory lens, we see the big hire, but none of the subsequent little hires.

And, by believing all innovation is a good, we see only the challenges of diffusion and adoption. We pay scant regard to the very real resistance to innovations (why would there be resistance, it’s a great thing I’ve created…!)

Are there solutions?

Let’s not dismiss that there are proposed band-aids in such a myopic world to plaster over the issues.. Levitt’s Marketing Myopia from 1969 is the warning, yet few seem to take heed. Christensen’s Job-to-be-done theory can help break the goods-dominant obsession. Blue Ocean strategy can help us identify service aspects to higher or introduce (or lower/remove) to create new markets. And lean approaches might address the transactional nature of value-in-exchange.

But, these are bolt-on solutions looking to fix issues in the underlying approach.

Instead, Let’s look at defining innovation through a service-dominant logic lens – where the above comes for free, from the start.

Evolving the definition

It wasn’t always the case that we are so goods-dominant in our thinking. Jump back to 1934 and we find Schumpter (1934) – just before he wrote what we saw above – seeing innovation as:

“new combinations” of new or existing knowledge, resources, equipment etc…subject to attempts at commercialization (Schumpeter, 1934)

A Guide to Schumpter Fagerberg, 2008

This is rather service-based. With its focus on combinations of skills and resources (knowledge, resource, equipment, etc.).

And it is a service-based view that I propose we need to take to give us a workable definition of innovation. That will help us overcome the innovation problem. Instead of grounding the definition in goods-dominant logic, I choose to use the evolution of service-dominant logic.

At its heart, service-dominant logic means a shift to beneficiary-first and relational thinking as well as how resources and competences are applied (rather than focus on the end output). It also means we see goods as distribution mechanisms for service, rather than engaging in a goods vs service debate.

Innovation: A definition for growth

Here, then, is my proposed definition.

Figure 3: Defining innovation in a modern, service-dominant logic way

Innovation is creating and offering a new (to the organisation, market/industry, or world) value proposition:

  • that helps the beneficiary make progress…
    • …better than they can currently
  • that improves during, or as a result of, the naturally occurring value co-creation
  • which is delivered through the scalable and sustainable co-ordination of skills and resources…
    • …often across an ecosystem
  • and where resistance (postponement, rejection, or opposition) is minimised

Let’s unpack all of this on the next page.

Innovation is creating and offering a value proposition…

At the start of my definition, I set the tone. We – the manufacturer/producer/etc – can only offer a value proposition.

What is a value proposition? Well, I explore that over in this article.

Rather than, as under the old way of thinking, offering something we believe has intrinsic value, we actually can only propose a configuration of resources that we believe will (Co-)create value when used. This aligns with foundational premise #7 and #6 of service-dominant logic.

Actors cannot deliver value but can participate in the creation and offering of value propositions

Foundational Principle #7 of service-dominant logic

Value is always co-created by multiple actors, always including the beneficiary

Foundational Principle #6 of service-dominant logic

What is the impact here? Well, it is a shift from a transactional, manufacturer knows best approach. And towards an exploratory, create value together during use approach. From “how do I, as manufacturer get as much profit as possible” to “how do I align my resources and competences to help the beneficiaries (myself included)”.

You might be asking how does this apply to goods, which are clearly (in our normal goods-dominant logic) not service and have intrinsic value? The evolution is to realise goods are distribution mechanisms for service. A CD, for example freezes a band’s performance, which we then unfreeze when we play. Or an axe freezes the knowledge of how to cut down a tree, to be unfrozen out in a forest when used. They are both value propositions until used and compete with many other options to get the job done. Do nothing, stream a song, see a live performance, hire someone to chop down the tree, borrow a tool instead of owning, etc.

And our value proposition has to be new/novel to be an innovation. But what does that mean?

…that is new to the organisation, market/industry, or the world

The definition of new (or novelty) turns out to be trickier than at first thought.

New to the world

A purist might take the view new means it has never been seen in the world before. That is to say, it is new to the world. Or, put another way, the actor is the source of innovation ( “Knowledge-Intensive Business Services As Co-Producers Of Innovation“, den Hertog’s (2000)).

New to market/industry

Carrying innovation – applying an innovation from one industry/market in a different one

But that rather cuts out innovations that have been “carried” from other industries or markets (where an actor, according to den Hertog, can be a facilitator or carrier). For example, using QR codes for event ticketing was fairly established innovation when it started to be used in the travel industry to allow passage through airport gates. There’s little doubt it was an innovation in the travel industry even though it already existed in a different industry. Innovations can also be carried across markets – something in, say, Australia being applied in Europe.

New to Organisation

And even into organisations. Implementing a new tool or process that is used in another organisation can still be new/novel to a different organisation.

My definition of new: to the world, market, industry or organisation

So, I use a broader definition of new to include new to the organisation, or market/industry or the world. This comes from Edison, bin Ali and Torkar’s (2013) definition of novelty (see Figure 4 and “Towards Innovation in the Software Industry” 2013). They use new to the firm, but I’ve changed to new to the wider organisation.

Figure 4: Novelness / Newness of an innovation

There is another reason to consider new to market/industry/organsiation. Customers are increasingly expecting to do things in your market/industry that they regularly do elsewhere. Tracking their personal packages as they do their commercial ones, for example. Or employees expecting to do in your organisation what they could do in previous/other organisations (not least in terms of digitalisation).

The Value Proposition helps the beneficiary make progress…

When a beneficiary evaluates a value proposition, they do so against some aim they wish to achieve. They are, in the words of Christensen’s job to be done theory, trying to make progress. The underlying thought is that people don’t buy products or services; they “hire” them to make progress in some aspect of their life.

Now, Christensen is using services in a product-dominant way (thinking of the output). But this make progress view is equally applicable in our service-dominant thinking. And it really comes for free as we see all actors, including the beneficiary, as being resource integrators (premise #9).

All social and economic actors are resource integrators

Foundational Premise #9 of service-dominant logic

And we integrate resources in order to achieve some particular aim. Which we can nearly call “making progress“. It’s worth noting that the job to be done is not just functional, it can have a combination of functional, emotional and social dimensions. And in “The Elements of Value“, Almquist, Senior & Bloch give us a useful hierarchy of areas where beneficiaries might be seeking to make progress.

But, for the innovation to be successful, the beneficiary needs to see some advantage.

…better than they can currently

The beneficiary needs to be able to make progress in a way that is better than they currently can. If not, then we are not offering a compelling reason for the beneficiary to fire their existing hire and hire our new service instead. And remember, the current hire could be ‘do nothing’.

However, we know that value is uniquely and phenomenologically determined by only the beneficiary.

Value is uniquely and phenomenologically determined by the beneficiary

Foundational premise #10 of service-dominant logic

So it is a tricky aspect to define “better“. It can mean many things, such as:

  • quicker
  • cheaper,
  • more conveniently,
  • reduction of perceived risk,
  • removal of hinders,
  • and so one.

And being “phenomenologically” determined is tough. That refers to the lived experience of individuals, not general group dynamics. So value determination could be time-of-day dependent. Think of supermarket self-scan checkouts. During a lunchtime rush when I want to buy only a sandwich, I might see value in them. For my weekly shop, maybe I see less value. Or I could see no value potential in them at any time as they are displacing hardworking checkout workers from jobs.

But service provision is usually not a one-off.

It improves as a result of co-creation of value

In most service delivery there are multiple beneficiaries. There is a main beneficiary (which we may want to think of as the customer). Additionally, the actor that offers the value proposition often benefits. That might be through the collection of data they can then use to further increase the value proposition (e.g Netflix’ recommendation engine). Or it might be through tailoring the interaction process as a result of all the interactions (e.g. service flow).

In such a way, the innovation (value proposition) improves as a result of the the co-creation of value that is going on.

A service-centric approach is inherently beneficiary oriented and relational

Foundational perms #8 of service-dominant logic

There are two drivers to this.

Firstly, we want repeat use. Job-to-be-done theory would look on this as the “big hire” – when the beneficiary switches to explore our value propositions – and “little hires” – the repeated choices to re-hire our value proposition again. To keep the little hires, we need to react to changing customer expectations as well as market changes.

And secondly, we can look further down the use of our service. Are there additional services we can provide? For example, “servitisation” of “products” – with Rolls Royce power by the hour being a good example (customers don’t be an engine, they pay the capability of thrust – RR look after servicing, logistics of parts etc)

Or even how do we support the beneficiary in the circular economy. Can we make changes to our service that enables re-use, re-purposing, sharing economy, re-manufacture etc?

And is delivered in a scalable and sustainable way…

However, our innovation has to be delivered in a scalable and sustainable way. Otherwise, it is unlikely to survive.

Scalable is within the context of the beneficiaries.

And it needs to be sustainable. I’ve avoided using the phrase commercially viable here. I want to keep the focus away from finance as that might not always be the case. For example, the value of data you get in the value proposition might outweigh financial considerations for a time.

Even though we observe that “indirect exchange masks the fundamental basis of exchange” we have to have some measure of survivability. The service-dominant view that survivability of the network is a focus, as well as future-proof for the future economic status. Sustainable could mean profit in a commercial setting, or not loss-making in non-profit organisations.

…often in an ecosystem…

But we rarely deliver a value proposition in isolation. Nearly all offerings involve an ecosystem. We have payment partners, distribution partners, and so on. Ecosystem scalability and sustainability is increasingly important in our own offerings.

Where the resistance to innovation is minimised

And finally, we know that innovation resistance – where the use of an innovation is postponed, rejected, or even opposed – is a big issue. But amazingly, it is rarely thought of or addressed today. So, to remind ourselves, I add this to my definition.

Figure 5: A recap of innovation resistance hierarchy and the causes

Wrapping Up

And so, we have our evolved definition of innovation. One that is grounded in service-dominant logic, rather than the usual product-dominated logic approaches that underpin today’s innovation problem.

Innovation is creating and offering a new (to the organisation, market/industry, or world) value proposition:

that helps the beneficiary make progress better than they can currently

that improves during, or as a result of, the naturally occurring value co-creation

which is delivered through the scalable and sustainable co-ordination of skills and resources (often across an ecosystem)

and where resistance (opposition, rejection, or postponement) is minimised

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