Current approaches to corporate innovation start either with a specific problem or capitalizing on an opportunity. These approaches were developed at a time when the world was more stable and predictable.
Today, market dynamics are constantly changing, and consumers’ preferences are evolving at a rapid pace. Many businesses are struggling to keep up with these changes, and using traditional approaches to innovation are no longer effective.
To navigate these challenges, innovators need a new approach to corporate innovation. This article describes why systems thinking is important, especially to corporate innovation, and how it can solve complex problems by generating novel, actionable ideas.
What’s Changed that Requires A New Approach to Corporate Innovation?
Few people predicted that a local virus originating in Wuhan, China in late 2019 would take mere months to exact a terrible toll on human lives and trigger economic turbulence that would last for years.
The COVID-19 pandemic is a perfect example of when levels of uncertainty were unprecedented. What happened in one part of the world spread rapidly to other parts with unpredictable outcomes.
There’s a simple explanation for this: the world is becoming more systemic. Each day, there is increased interconnectedness among people, products, and data all around the world. Advances in transportation facilitate the movement of people and products and advances in digital technologies facilitate the movement of data and money.
These connections mean that a small disturbance in one part of the system can cascade throughout the world and sometimes to catastrophic proportions. In addition to COVID-19, in recent years business has been impacted by zoonotic disease, geopolitics, financial crises, weather events, and new technologies – to name a few disturbances.
On top of that, crises are catalyzing and piling onto other crises, creating what are called polycrisis. No sooner do innovators and business leaders feel they have come out of one crisis that they have to address another.
Limitations to Current Innovation Approaches
Current innovation approaches such as stage-gate, design thinking, open innovation, and lean start-up are focused on launching innovations that improve business performance in the short-term. Even human-centered approaches, like design thinking, aim to improve the user experience first, which then leads to short-term outcomes. (You can read more about these approaches in this article.)
These approaches limit innovation for three reasons:
1. Innovations Become Too Narrow
As the world becomes more systemic, it is harder for innovators to predict what new products and services will be successful once they hit the market. Because of this, innovators have also become afraid of failing. They hesitate to take risks, potentially wasting time and money, or even becoming the target of backlash from bosses, shareholders, or customers.
This has led to innovators becoming more short-term in their outlook. They tend to innovate incrementally, by following competitors or responding to customers’ immediate demands.
Take Microsoft’s Zune music player for example. In 2006, Microsoft launched Zune as a competitor to Apple’s iPod, but failed to attract much market share. Microsoft engineers were likely asked to improve on the iPod, which they did, but the improvements were relatively minor. They were seduced into incrementalism, rather than the need to offer a more radical redesign.
Reflect: How might have Microsoft’s engineers addressed the innovation scope differently?
2. Innovations Become Oversized
A few innovators take a completely opposing approach to incrementalism and seek moonshots – big ideas that require significant investments, lead the market, and generate huge profits.
Successful moonshots hold brand reputation for long periods of time, often turning into a household name. The counterpoint to Zune is the iPod. It was the platform for numerous other innovations from Apple, such as the iPhone and iPad, and numerous competitor products including Zune.
Because the world is becoming more systemic, it is much harder to shape the future. Open AI’s investment in artificial intelligence that led to the release of ChatGPT and DALL-E offer good examples, but behind it are billions of dollars in investment and a competitive market against other tech leaders. It’s still unclear if this moonshot will pay off.
3. Innovations Create Unintended Consequences
When innovations become narrower, they can aggregate to create systems-level challenges. What may have seemed like a good idea at the time can create unintended consequences for society and even the planet.
Ride-sharing is a good example. Based on a report by Schaller Consulting, Chicago had more Uber and Lyft cars in 2017 than any other city in the United States. Chicago had limited the number of taxi licenses granted to 7,000, yet there were 117,000 ridesharing vehicles, which were offering 7-8 times more rides than taxis.
While this was a huge success for Uber and Lyft, the cost to Chicago residents was profound. The number of passengers travelling through taxis and ride-sharing services increased by 37% from 2016 to 2017, which created a drop in the use of public transportation, cycling and walking.
Ride-sharing was also contributing to pollution and congestion, and eroding public health and the public transportation system. Ride-sharing was good for Uber and Lyft and some Chicago residents, but it was not good for the city as a whole.
There are several other examples of innovations that have contributed to social and environmental issues – from social media to single-use plastics. These innovations have been central to creating profit for business and have offered important products and services for customers. Yet, they have created unintended consequences – such as privacy concerns and additional waste in landfills.
This is not to say that Uber or Lyft should have anticipated the ultimate harm that they create, but that current approaches to corporate innovation do not offer a process that enables considerations of the long-term impacts on society and the planet.
How Systems Thinking Addresses These Limitations
Systems thinking offers innovators a different approach that is particularly suited to turbulent environments. (This article describes what is systems thinking and how it differs from traditional analytical thinking.)
Below is a description of how systems thinking addresses the limitations of current approaches to innovation:
1. Overcoming a narrow focus with clear purpose.
Remember the example of Zune above? If the engineers were asked to design a new system for listening to music everywhere instead of designing a new iPod, they would have probably approached the innovation differently. The scope would have opened from creating a single product to considering whether multiple products or even a service could facilitate access to music everywhere.
While it’s impossible to say for certain what Microsoft would have come up with if they had used systems thinking, it’s possible that they could have come up with something like Spotify. Microsoft may have considered other factors such as the rise of streaming services, the changing landscape of the music industry, and the increasing importance of mobile devices.
Systems thinking encourages innovators to think beyond incremental improvements and consider the broader system in which their product or service exists. This can lead to more innovative and comprehensive solutions that better address the wants and needs of customers. By taking a more holistic approach and focusing on a clear purpose, Microsoft may have been able to create a more innovative and successful product that better addressed the changing needs of consumers.
2. Acknowledging the unknowable, unpredictable, and uncontrollable.
If Uber and Lyft had used systems thinking, they would have recognized that transportation is a system, made up of many interconnected elements and components that can be unknowable, unpredictable, and uncontrollable.
Uber and Lyft could have better anticipated the unintended consequences of ridesharing, such as the impact on traffic congestion and public transit systems and the social and economic impacts of their business model, such as the exploitation of drivers and the erosion of traditional employment models.
Systems thinking would have encouraged Uber and Lyft to work with other stakeholders, such as city planners and public transit agencies from Chicago and other U.S. cities, to create a more integrated and sustainable transportation system that benefits all stakeholders. This would have required Uber to be more open and collaborative in their approach to innovation, rather than pursuing a narrow, self-centered agenda.
In an increasingly systemic world, it is challenging to predict the outcome of any innovation, especially its potential impact on society and the planet. System thinking acknowledges that there will always be unknown, unpredictable, and uncontrollable factors. Using systems thinking, Uber and Lyft may have been able to create a more sustainable and socially responsible business model and avoid some of the controversies and setbacks that have plagued the company in recent years.
Recap: Current innovation approaches limit innovation through scope (narrow or oversized) and often create unintended consequences for society and the planet. Systems thinking addresses these limitations by giving innovators a clear purpose and acknowledges the unknowable, unpredictable, and uncontrollable.