What Constitutes Innovation?

Among the most significant breakthroughs of our time are developments like penicillin, vaccines, electricity, telecommunications, and smartphones.

Let’s briefly explore the origins of these innovations. Many were discovered through trial and error, and it often took years for them to be recognized as breakthroughs. Most of these innovations were not entirely new; they had been discovered earlier but only identified as significant much later.

For instance, consider how some innovations came to be: - mRNA treatments and vaccines, including those for COVID-19, stemmed from the discovery of CAS9, a technology used in yogurt production, with the CRISPR system adopted as an antiviral defense. Although CRISPR was identified in the 1980s, it wasn't until 2013 that it was officially recognized as a breakthrough. - Penicillin, discovered by Alexander Flemming in 1928 while he was studying the influenza virus, arose from an accidental contamination of a staphylococcus culture plate. - The inception of Facebook followed the viral success of the FaceMash website at Harvard.

The list of innovations continues. The internet has evolved significantly, and 3D printing, initially used for prototyping since the 1980s, only recently emerged as a groundbreaking technology due to new business models that expanded production capabilities to end-users.

The most impactful innovations in history have often emerged from frequent experimentation and numerous failures. So, what prevents us from experimenting more in contemporary settings?

Prospect Theory: A Barrier to Innovation

As humans, we are inherently risk-averse, yet we also tend to be overconfident, creating a precarious balance. Daniel Kahneman, in his acclaimed book "Thinking, Fast and Slow," details these decision-making tendencies through what he calls "Prospect Theory," reflecting on his extensive research in behavioral economics that earned him a Nobel Prize in 2002.

Kahneman's findings indicate that people are more averse to losses than they are motivated by gains. This aversion to risk understandably makes us hesitant to explore new avenues.

A Bright Side

Innovation does not always require breakthrough ideas; any organization can foster competitive innovation internally without enormous budgets.

I have formulated a method called Business Model Hacking, comprising four distinct approaches to unlock innovation. Some methods are more intricate than others, ranging from group hackathons to straightforward frameworks suitable for individual application.

Business Model Hacking has been validated across various organizations, from small businesses to major corporations, as I will elaborate on in future articles.

Here, I will demonstrate one approach by examining existing revenue sources within businesses. This method focuses on identifying and unlocking hidden innovations that may already exist but remain undiscovered.

The Approach

Begin by deconstructing your business into what I term "Natural Fractal Units" (NFUs). An NFU is characterized by:

• A clear and unique value proposition that customers are willing to pay for.
• A market-defined entity, such as standalone companies facing customers and competitors.
• A natural vehicle for developing or renewing competitive capabilities.
• Authority to devise and implement key strategies.
• Control over essential resources for strategy execution.
• The ability for managers to concentrate on vital strategic and operational decisions.
• Basic accountability for realistic profit generation.
• Encouragement of rational decision-making throughout the organization.
• Responsibility for revenue and profitability.
• Development of future leaders by incorporating a P&L perspective within the organization.

The term NFU reflects the "scale-free" properties of fractals. Fractals are self-similar geometric shapes. Similarly, business units exhibit self-similarity and scale-free characteristics. By identifying these business fractals, you can break them down into smaller components for evaluation.

The Process

To initiate the process, segment your income streams into NFUs by layering revenues and potential revenues across eight dimensions:

From here, integrate the NFU dimensions into a matrix that helps extract NFUs from ongoing operations.

Upon completion, apply the flowchart below to identify suitable options and set them on a growth trajectory:

This method is effective only if your business is operational, with identifiable revenues, customers, and a profit and loss statement. If you can implement this approach, you will likely uncover new ideas or innovations you weren't aware of.

Once you identify potential ideas, prioritization and portfolio management become essential. Various methods can be used to validate and assess the feasibility of each concept. Market feedback can be gathered through simple testing processes. Techniques like agile implementation, jobs-to-be-done, and working backwards are just a few ways to refine ideas.

Conclusion

Throughout history, we have witnessed remarkable innovations that have shaped our world. Yet, often, we have limited ourselves due to decision-making patterns that favor safer, more predictable choices. Consequently, we let the fear of failure hinder the next groundbreaking innovation.

Many organizations focus solely on enhancing existing offerings, which may yield short-term profits. However, this approach can stifle long-term growth. Without innovation, businesses risk falling behind, especially if competitors pursue experimentation or new disruptors enter the market. Shifting our mindset to embrace failure is the first step toward fostering innovation.

With the cost-free and straightforward strategy outlined above, there are no excuses for avoiding exploration and experimentation. It’s time to step out of our comfort zones and adopt a more open mindset toward business. By leveraging this simple methodology, we can unearth unique opportunities and perhaps discover our next major breakthrough.

If you found this article insightful and wish to learn more from my experiences, consider reading the following:

• How to Validate if Your Startup, New Business or Venture Will Succeed Using Fractals
• What I Learned from 12,000 Executives and CEOs that Can Change Your Life
• 5 Things You Can Do Now To Change the Course Of Your Life and Increase Your Odds for Success

References

Bellis, M. (2010, September 1). The history of Facebook and how it was invented. ThoughtCo. https://www.thoughtco.com/who-invented-facebook-1991791

Gaynes, R. (2017). The discovery of penicillin — new insights after more than 75 years of clinical use. Emerging Infectious Diseases, 23(5), 849–853. https://doi.org/10.3201/eid2305.161556

Gecis, Z. (2019, December 28). 8 things to use in “jobs-to-be-done” framework for product development. https://uxdesign.cc/8-things-to-use-in-jobs-to-be-done-framework-for-product-development-4ae7c6f3c30b

Gillil, N. (2018, January 3). Why the “working backwards” method is key to a superior customer experience. https://econsultancy.com/why-the-working-backwards-method-is-key-to-a-superior-customer-experience/

Inc, L. (n.d.). Agile implementation: The approach, process and models. Retrieved May 3, 2022, from https://www.leandog.com/agile-process-models-guide#the_agile_approach

Ng, D. (2020, June 30). A brief history of crispr-cas9 genome-editing tools. https://bitesizebio.com/47927/history-crispr/

Sculpteo. (2019). The history of 3D printing: From the 80s to today. https://www.sculpteo.com/en/3d-learning-hub/basics-of-3d-printing/the-history-of-3d-printing/

UBS. (2019, September 26). What determines human decisions? Nobel Perspectives. https://www.ubs.com/microsites/nobel-perspectives/en/laureates/daniel-kahneman.html