Wednesday, October 28, 2009

Venturesome Consumption

Chris Potts pointed me to the work of Amar Bhidé, which raises some interesting and important questions for innovation and organization change in general, and for EA in particular.
Venturesome Consumption, Innovation and Globalization (pdf)
Paper for a Joint Conference of CESifo and the Center on Capitalism and Society
“Perspectives on the Performance of the Continent’s Economies”
Venice, 21 - 22 July 2006
by Amar Bhidé

1. Absorptive capacity. I think this concept is important both for inter-enterprise innovation (adoption of new business models, practices and technologies by the enterprise as a whole) and intra-enterprise innovation (diffusion of new systems and processes across the organization). Within Lenscraft, this is covered by the Adoption Engineering lens.

2. Productivity and competitive advantage. There is an important question about how innovation generates value, and for whom. If all players in a competitive industry adopt (are forced to adopt) the same innovation, then none of them may gain any net value, but all of them may avoid losing value. Arguably the customers are the beneficiaries, but this is not a straightforward calculation. For example, customers benefit more than banks from the ubiquity of ATMs, although this is hard to quantify, and with other technologies it may be difficult to demonstrate any customer benefit at all. On a Marxian argument, although technology can produce a short-term improvement in profit in an industry, the longer-term effect on profit is downwards, in which case it would be puzzling why monopolies would ever bother. (Indeed, in some utilities, the pressure for technological innovation seems to come largely from the regulators.) The Marxian argument about the falling rate of profit isn't universally applicable, but it behoves champions of innovation within organizations to understand where it does and doesn't apply.

3. ROI. The first two points are not addressed in the bog-standard business case, and the ROI is often grossly over-estimated, based on extremely naive assumptions. A proper joined-up systems analysis would expose the weaknesses here. This relates to what Bhidé calls Knightian uncertainty.

4. Resourceful problem solving. The users have an active role in producing what I have called the "technology-in-use". This also links to the work of Erik von Hippel.

5. Barriers to innovation and diffusion. Bhidé is interested in national borders; some of us may be more interested in organizational boundaries (both external and internal). But the word "barriers" is an inadequate metaphor - in reality there is a landscape with uphill and downhill contours, making some paths easier and quicker than others, but few paths are completely impassable.

6. One of the consequences of this analysis is that we should be modelling the internal and external flows of knowledge and ideas, as a critical element of a business model. To some extent this is already done in industries like pharma, but these flows largely focus on product development knowledge and don't provide a more general picture.

7. Overall, an important plea for the demand side of innovation to be taken as seriously as the supply side. I completely agree with this.

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