Mastering Innovation in a World of Complexity

A 1994 ground breaking paper on product development suggested that there were two kinds of product development - a traditional analytical one moving through  defined stages from the abstract to the specific as a problem solving process and another based on interpretive and continuous dialogue.[i]

The analytical approach assumes we can work out what customers want, while the interpretive approach assumes that we can't and have to resort to interpretation. Both approaches have their value and extend the range of options open to product managers to consider.

For most industries, product development requires collaboration across different business units and across different businesses. This is a pre-internet requirement. The auto industry, for example, has long required collaboration across many parts providers, distributors and financing vehicles.

The problem with communicating across different businesses is that it often involves communicating across different cultures, languages and skills. As business models come under more pressure to change, this ability to communicate becomes more important.

Have we made progress resolving this problem?

The pressure to innovate has only increased in recent years. In financial services, many institutions have become bigger and more complex reinforcing vertical reporting structures making integration more challenging. Technology makes connecting with different people a lot easier but emails and conference calls can be a substitute for an effective dialogue. So while the pressure to innovate is greater the ability to innovate through integration and collaboration may actually be less.

Increased regulation may not help because it forces financial institutions to be even more guarded about what they share and who they share it with.

Let's take a hypothetical example.

An ATM product manager has a vision of customer experience. He feels he can identify with the customer because he is one himself. As a customer his pain is the small size of the screen. A bigger screen would allow customers to access more services more easily.

So his innovation is 'big screen' ATMs.

He emails the Head of Security who replies the big screen is too risky. Other people might be able to look over the user's shoulder and capture confidential information.

Then he emails the Head of Operations who shoots back that the idea is too impractical. The big screen can only be achieved by reducing the size of the vault which will restrict the functionality of the machine and the amount of cash it can hold.

Finally he emails the Head of Technology who responds that the software required to support the increased functionality of the bigger screen would be too costly to maintain.

By the time a new RFP is issued by Procurement the desired functionality looks very much like the old ATMs and the innovation is effectively dead.

What if a different dialogue took place?

With the Head of Security:

"Supposing we had a rotating screen that would allow the user to have greater control over their privacy. Instead of having queues behind the ATM users we could also create kiosks alongside walls instead of being embedded in them so that the ATM queue would be in front of the customers and not behind them. It would now be more difficult to look over anyone's shoulder."

With the Head of Operations:

"By taking the processing out of the vault and concentrating it elsewhere we could accommodate more cash and perhaps even reduce the ATM footprint in the branch."

With the Head of Technology:

"By putting most of the technology in the cloud, maintenance and service costs would be dramatically reduced and upgrades would be easier to manage."

The product manager does not know exactly what customers want, but based on his interpretation, perhaps supported by some analysis he has interpreted what the customer wants and through dialogue with colleagues has managed to adapt and possibly strengthen that interpretation and meet, perhaps exceed their needs as well. But for sucah a dialogue to take place each party has to understand the environment the other parties live in. Otherwise it becomes a lot more difficult for effective dialogue to take place.

Technology allows us to connect more easily with people inside and outside the firm. But organizational structure and the collaboration required for effective innovation are going in opposite directions. To overcome this, dialogue has become more important. Technology can play an important role in this process but it should be used to empower and enable conversation not replace it.

[i] The Organization of Product Development by MICHAEL J. PIORE, RICHARD K. LESTER, FRED M. KOFMAN and KAMAL M. MALEK (Industrial Performance Center, Massachusetts Institute of Technology, Cambridge, MA 02139, USA). Oxford Journals 1994