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Innovation and derivation, uncomfortable bedfellows

Digital thinking.

You can, it seems, be both innovative and derivative at the same time.

So rather than being one of the other, you can use innovation to disrupt an existing derivative business model, which places you on the cusp of both.

Just over a year ago I wrote a short article titled Derivative or Innovative, in which I laid out a theory that tried to explain the components of the two different approaches and (over) simplified it into how the operational model executes. It was also very skewed to the digital world.

I suggested that to be successful in a derivative model you could only incrementally improve the customer services and efficiency side of the business. On reflection, I was wrong to make it so black and white. There is a place for a business to be more efficient, cheaper to run and focussed on client retention but that’s not the only scenario whereby a derivative business can prosper.

Basing your business model on an established one will get your started, and if run with enough discipline, it can generate the cash to migrate to a more innovative one. Or incentivise your staff to be innovative. Innovation is largely about risk, doing something not done before such as a takeaway chain sells £10 burgers. By way of contrast, opening a.n.other McDonalds franchise is close to zero risk.

Less risk, less returns. That most definitely is true. But it doesn’t follow that high-risk will generate any returns, that is down to the vision of the business leaders, a bit of luck and a good deal of timing.

I still stand by one element of my theory, it’s very much a function of the business leadership – it’s easier to build a derivative model and certainly cheaper and without the vision to develop the business it will die. That’s probably stating obvious, but many a (large) corporation seems to forget that and fall by the wayside.

The grey area I failed to cover revolves around internal innovation. Taking a good existing model and then improving on the way it’s delivered. These improvements should be giant steps, aim for reducing costs by 20%, not 1%. Aim to increase efficiency by a number of orders, not just 5%.

People do this, not processes – that means creating a culture of innovation and trying out lots of new stuff. And here is the rub, it’s pretty hard hiring innovators if you’re thinking operationally and derivative. Your time, and approach is so closely linked with perfecting an existing model that you’ll stop seeing trees for the wood.

Which takes us back full circle to the business leadership. This is where the innovation starts. So, if you want to work in a place of innovation then you need to fix that internally first.