Management reading

The many faces of innovation

Jul 9th 2008
From Economist.com

Two superior books on a popular subject

INNOVATION has become a popular subject on the business bookshelf over the past few years. But few of the new titles have offered much in the way of vision, insight or practical guidance. Two recent works—Charles Leadbeater's “We-Think” (Profile Books) and “The New Age of Innovation”, by C.K Prahalad and M.S. Krishnan (McGraw-Hill)—are an exception to that rule. That each of them manages to say something potentially useful makes them worthy of special attention.

“We-Think” is the more radical of the pair. After a spell in journalism, Mr Leadbeater, a Briton, reinvented himself as a management thinker and as an adviser to governments via Demos, the New Labourite think-tank. There is a predictable whiff of third-wayism around his book's central point: that internet-based, mass collaboration is mounting a serious challenge to the traditional, hierarchical company—and thus to the very organisation of capital in society.

“We-Think” innovation supposedly unites amateur and expert volunteers in such a way as to enable them produce goods and services that are not only free but often superior to those provided by corporations. Moreover, its acolytes seem happier than the wage-slaves who belong to the typical firm: “Well-being will come to depend less on what we own and consume and more on what we can share with others and create together,” says Mr Leadbeater, adding that this approach is “as effective a base for productive activity as private ownership”.

Such utopianism can provoke cynicism. Wikipedia is cited as a successful example of such new-fangled collaboration, and supposedly it outperforms traditional encyclopedias not only in its raw volume but also in accuracy. Really? And even if it is true that the “We-Think” approach is, as this book argues, spreading rapidly in business, politics, education, health care and more, unsuccessful collaborations abound, interspersed between the gems of the open-source software movement Mr Leadbeater so admires. No small number of Wikipedia entries testify to this sad fact, however useful the whole thing may be.

There is also plenty to challenge in the implicit assumption that collaboration is superior to competition as a model for productive activity. Competition clearly spurs creativity among some individuals (Bill Gates springs to mind). Indeed personal motivations—such as the desire for personal recognition, money or even glory—tend to lurk behind even the most egalitarian of ventures. But Mr Leadbeater adds weight to his premise by giving it a grand historical scale, putting collaboration in the context of a centuries-old clash between communitarian co-operation and private ownership, and touching on 1960s idealists and French Marxist philosophes along the way.

Mr Leadbeater is no zealot. He accepts that the “We-Think” approach is not always the best, requiring as it does a good many preconditions, including a group of pioneers at its core, a wider circle of informed contributors, transparency and clear rules. And Mr Leadbeater is clear-eyed about potential dangers of “We-Thinking”, from encroachments on personal privacy to the production of dangerous viruses (both software-based and biological).

His conclusion—that the future of business lies in a mixture of traditional organisation with this new sort of mass collaboration, with plenty of opportunities for “corporate cross-dressing”—is hard to deny. He cites IBM, Nokia and Eli Lily as examples of companies that have made good use of collaborative spirit, while retaining perfectly recognisable elements of traditional corporate structure. Consumers “want to be participants in the creation of services they want,” he declares. But still they want to be consumers, not Communards.

Consumer desire animates the “The New Age of Innovation” too, but unlike Mr Leadbeater, C.K Prahalad and M.S. Krishnan view innovation entirely from the perspective of profit. Their book is nonetheless a challenge to orthodox thinking, in the mould of Mr Prahalad's “The Fortune at the Bottom of the Pyramid” (2005), which showed how companies using new business models could find profit in serving the world's poorest consumers.

In their new work, the authors identify a global “megatrend”, focused on the customer, which ought to inform all corporate approaches to innovation. Companies, they argue, are starting to tailor their products and services as closely as possible to each individual customer's needs. They set a bold target, which will become conceivable only if firms draw on as wide a resource base as possible. A century ago, business worked the opposite way: resources were kept in-house, and customers were offered very little by way of choice. But with information technology opening up new vistas, and customers increasingly demanding personalised attention, businesses must transform themselves.

Anything can be customised, Messrs Prahalad and Krishnan contend. The humble car tyre, for example, could be priced according to the number of miles it will need to be driven. Car insurers could use GPS tracking devices to calculate premiums based on an individual driver's location. A shoe shop could scan a customer's feet to produce and deliver a bespoke pair of shoes within days. An internet-based teaching service allows its students to choose what they study, and when.

This is a grandiose vision. But achieving it will take hard work, and new thinking by firms that tend to stay set in their ways. Messrs Prahalad and Krishnan enliven their message with vivid case studies—such as Nirvana, a Bangalore-based outsourcer, which tracks the voice amplitude in its customers' phone calls to ascertain their moods; or UPS, a courier company, which plans the routes of its delivery vehicles to avoid traffic congestion, poor weather and even (in relevant countries) too many time-consuming left turns. The authors are not blind to the hazards of over-planning, devoting space to cases of individualisation gone wrong. As always, good planning and attention to detail remain vital.

Original thinking does not save the book from a common malaise of writing about management—an over-reliance on jargon. Too much talk of “co-creating”, “silos” and “leveraging” might put off readers who would prefer Mr Leadbeater's easy journalistic style. Yet those who persist will be rewarded with a coherent view of the innovation challenge, and a detailed analysis of how to meet it.