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Innovation is dangerous for your health!

A Position Paper by Walter Adamson


CEO, Digital Investor Pty Ltd
www.digitalinvestor.com.au
April 2002, amended August 2002

Government spending promoting innovation has never been bigger or interest more active. But a large
portion of this innovation industry is dangerous because it distracts companies into thinking about
inventions and intellectual property issues and away from the core process of innovation as an outcome of
change leadership. Companies that get distracted by invention and intellectual property issues, and who
do not understand the role of innovation within change leadership, face the real prospect of destroying
shareholder value and company assets1. That is why “innovation” as it is currently promoted is dangerous
for their health. For most companies the answer lies in not confusing invention and innovation, and in
focusing on change leadership.

Beware the Innovation Industry

The innovation business has never been bigger. There has been a billowing of government organizations,
non-government organizations, quasi-autonomous non-government organizations, government innovation
centres, innovation councils, innovation ministers, innovation grants, government-led innovation
conferences, and of course even innovation columns in the business press. Even discussion of an
innovation-led recovery can be credibly promoted by innovation-industry backers.

Yet it can be confidently predicted that any such “innovation-led recovery” will, in the fullness of
hindsight, falter. Worse, it can distract companies from the real business of focusing on value-
generating strategy and execution.

Why is this so?

Consider innovation and invention – and here is a truism: as a core competence more than 90% of
companies need to innovate and less than 10% of companies need to invent. Distracting companies
who need effective innovation with topics centred on invention is both risky and wastes time and money.
Yet this misguided focus seems to be the somewhat relentless message emanating from the current
innovation industry.

There is confusion between invention and innovation

There would appear to be two main reasons for this unhealthy state. The first culprit is the confusion
between invention and innovation. On the one hand companies seek and listen to advice from the
innovation industry which they believe will help them with innovation. Most unfortunately the majority of
this so-called innovation advice is about patents and intellectual property protection – mostly focused on
being inventive or on creating inventions. This type of advice then leads some companies to distract their
focus and resources from innovation into invention when the latter is totally unsuited to their business
purpose or core competencies.

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Stop Press: Brandrill chief says board erred – Australian Financial Review, August 22, 2002.
Read how shareholders lost 90% of their share value and IN ADDITION a further 90% of the remaining
assets had to be pledged to creditors after an operations contracting company confused innovation for
invention and spend more than their total profits during the period on a failed commercialization of R&D.
The CEO lost his job; the shareholders lost their money and their assets – read the full story on Page 2.

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©2002 Walter Adamson. All Rights Reserved. You may reprint or distribute this document as long as it has
not been modified and proper credit is given to Walter Adamson and Digital Investor Pty Ltd.
The original published at: http://www.digitalinvestor.com.au/
First Published: April 2002, Revised: August 2002. adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

The cold facts are that the core competencies of invention and commercialization are possessed by
very few firms. And this is both sensible and reasonable because most firms need to be much better at
innovation then invention. Commercialization of inventions is a very high risk undertaking, and for
example Australia has been particularly poor and trailing world benchmarks in “its understanding,
management and commercialization of intellectual property” (see Innovation Summit 2000 Report,
published by the Australian Federal Government, 2001).

Invention Competencies ARE NOT Innovation Competencies

INVENTION and commercialization are INNOVATION should be within the core


extraordinary events and therefore are not and competencies of all organizations and be an
need not be within the core competencies of integrated part of their management practices –
most companies and organizations. particularly change leadership.

Confusing innovation and invention is dangerous and value-destroying

Fig. 1 – Distinction between innovation and invention and their role in the firm.

A recent study published by the US Association of Technology Managers (2001) revealed that of 184,000
invention disclosures (reports) at US institutions from 1991 to 1999 only 0.8% resulted in licenses that
broke-even or better on their costs of commercialization. Stanford University’s Office of Technology
Transfer (OTT) reports (April 2001) that over a 31-year history of invention only one in 4500 licenses
becomes a big hit. Katherine KU, Director of OTT says “commercialization of research is very very high
risk…”

Therefore most companies should not become distracted by invention because they will destroy
value, and they should ensure that the current innovation industry does not lead them towards
becoming an “inventive” firm. If this warning sounds extreme check the breaking news story below.

22 August 2002. Australian Financial Review. Brandrill, an ASX-listed mining contract operations
company announced a “rescue package” which delivers up to 90% of the equity of company into the
hands of creditors. This is on top of a fall in share price from $2.90 in November 2000 to a last trade
prior to suspension of $0.175. The Chairman was quoted as the company saying that “made a mistake
by focusing too much effort on growing … technology at the expense of its core contracting business”.
During the past 4 years Brandrill invested $35 million attempting to commercialise technology for non-
explosive breaking of rock. That sum is about SIX times the reported profit for the same period.
Over the same period Brandrill invested approximately $13 million in the development of its South
African contracting business for the prime purposes of establishing a vehicle for the introduction of the
technology. The Companies core contracting business reportedly “has a solid order book”. Yet the
company destroyed its shareholder assets and more than its lifelong history of profits by becoming
distracted by R&D and commmercialisation – areas where it lacked core competencies.

The innovation industry sells a solution to the wrong problem

The confusion between innovation and invention is a fundamental reason for the misdirection of assets -
but not sufficient. The second reason, and the most substantial, is that innovation, like the learning
organization and like knowledge management, is a cause without a home. Without a home the

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

objectives and culture and methods of the innovation industry search for a grounding, and often miss the
mark in the majority of corporate environments.

The grounding is not in the legal department, corporate licensing, the research labs, or the commercial
teams – although that is where the patent and intellectual property and licensing paraphernalia emanating
from the innovation industry focus their attention.

It appears blindingly obvious that none of those departments or functions, unless part of research-driven
company, are going to drive the business forward and generate “benchmark plus” wealth. However, if that
is all the innovation industry has to sell then that is what it will sell. And that is the fundamental
reasons they are selling solutions to the wrong problem – selling solutions to help companies become
inventive or to manage their inventions and intellectual property and not to become innovative.

There IS a “right problem” for innovation – and a home

Yet there is a home for the vital message of innovation - but for some reason identification of that home is
unclear in current readings. That home, and the governing framework for these components, is in the
management practice of change leadership.

Without change there is no innovation, creativity, Innovation as strategy must be


incorporated into the overarching
or incentive for improvement. Those who initiate practice of change leadership. As
change will have a better opportunity to manage William Pollard noted, “without change
there is no innovation…” From change,
the change that is inevitable. and from observing and understanding
- William Pollard, author of “Soul of The Firm” 2000. change, comes innovation. And from
continuous innovation invention may
arise.

Thus, from the above simple notions, emerges the framework and relationship for innovation and
between innovation and invention for the vast majority of firms.

The essential management practice of, and competence in change leadership builds a platform for the
deployment of innovation skills, knowledge management skills and tools, and gives meaning to the
implementation of the learning organization.

The learning organization has no purpose if not to be better at changing, better than the competitors, and
better with respect to markets and customer value and staff, for example.

Innovation is part of the framework of strategic change leadership

Therefore the key contention being made here is that innovation methodologies, techniques & tools are
part of the enabling kit assisting in the outcome of the implementation of strategic change leadership,
just as knowledge management and “the learning organization” also assist and help enable the same
purpose of change leadership. These tools are part of the practice of change leadership – a core and
essential practice for every successful company.

The insight that innovation is part of the enabling framework of strategic change management, and that so
are knowledge management and the learning organization, is important in explaining past failures. It can
now be seen why, when learning or innovation or knowledge management is promoted in the absence of a
home and framework, they fail to find root and cause, and fail to be able to deliver value. They fail because

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

they become “causes” without grip on the core management practices and frameworks. Thus arises the
poor returns on investment and the inevitable skepticism.

STRATEGIC CHANGE MANAGEMENT

Provides a Framework
for the successful implementation of Innovation

INNOVATION KNOWLEDGE THE LEARNING


MANAGEMENT ORGANISATION

Methodologies Methodologies Methodologies


Tools & Tools & Tools &
Techniques Techniques Techniques

Fig. 2 – Strategic change management framework showing three elements of the framework, highlighting
that innovation fits with knowledge management and the learning organization as components of
management practice in the firm

Butlin and Carnegie, in their stand-out contribution to “Innovation and Imagination at Work” AIM, 2001,
state “It is an enduring myth that invention drives successful innovation…It is our experience that
innovating enterprises are in fact built, usually very purposefully.”

Yet in contrast to the real core needs of purposeful innovation, visits to government innovation centers, and
innovation conferences, will yield little more than brochures from IP Australia, name cards of purveyors of
patent and intellectual property protection, and the reruns of the need for effective commercialization.

That is not to say that effective commercialization is unimportant. It is very important, and very difficult
and very high risk, as mentioned earlier. And for some organizations it is critical, but its mystery belongs
more with invention than with innovation. The key purpose of innovation, for any organization, is to
create wealth2.

Jerry Ellis, in The Management of Innovation, says “My definition is thus that innovation is where
newness, wealth creation and speed intersect. This overarching definition of innovation includes all
business processes, not only scientific research or new technology development. Similarly, innovators
come from all parts of the business, not just from the R&D laboratory.

From invention and creation to the capture of wealth is a long path, and one which should be not be begun
from the very beginning if core managerial competencies are focused further down the journey. That is the
key theme of this paper.

2 “…creativity and invention without wealth creation is not innovation”. The Management of Innovation. Jerry
Ellis, The Warren Centre Innovation Lecture, April 1997.

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

Deliver innovation through core business competencies

Companies who drive innovation through change leadership, using their learnings and their knowledge
bases and with their marketing and commercialization skills, will generally know how to bring these
organic innovations to market.

They will know when and how to call upon experts, and when to call upon their networks. They will
understand when and how to call upon and how to involve heir customers to help determine and deliver
value to the process. For this output of innovation resulting from their process of change leadership
companies should not be in need of externally-sourced commercialization skills.

This type of commercialization, more correctly labeled “continuous improvement”, needs to be part
of the set of core corporate skills.

When innovation becomes invention help is needed

However, innovation can lead to invention. And in fact innovation as part of the fabric of change
leadership will almost inevitably lead to invention - as in the Japanese model. And here we have a different
story to the innovation “as a core competence” model above. Remember – most companies will not have
nor need to have core competencies in invention commercialization.

To illustrate this point, and the point expounded above explaining the difference between invention and
innovation, consider the case of Corning Inc. Roger Ackerman, CEO and then Chairman of Corning in
2001, said “R&D are the lifeblood of the company … we have a disciplined way of managing businesses at
different stages of maturity”.

This statement serves to illustrate that being an inventive R&D-driven company is a specialist focus in its
own right – which is not the focus of the vast majority of companies. Yet all companies must be innovative
to survive and to prosper.

(Ackerman’s statement also highlights that managing multiple companies at vastly different stages of
maturity is again a super specialist skill not possessed nor needed to be possessed by most companies. This
a key issue for companies seeking to kick-start “internal venturing”.)

Invention for most companies is an unusual and special event!

The management of invention does require expert help, which by definition will not be self-contained
with a company unless the company is an invention-driven company. It will require strategic assessment,
patent and legal advice, portfolio review, and a business case built around the potential value creation.

Given the high risk of invention commercialization extra-ordinary advice may well be required, outside the
normal purview and competency of the company. This is where models like the DILIGENT™
Commercialization With Confidence3 process becomes vitally important – to avoid the litany of past
commercialization failures.

The interventions described above are the special events surrounding invention and commercial discovery
in a firm that has innovation practices purposely built into a core competence of change leadership. They
are separate to the innovation practices and specific to inventions - and that is a key distinction needed in
order to effectively manage these two different types of activities.

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DILIGENT and the slogan Commercialisation With Confidence are trademarks of Digital Investor Pty Ltd

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

The innovation industry confuses its audience

It is well accepted that companies must innovate to create wealth and to prosper.

It is also by now apparent that most of the innovation industry is misguided and confusing its audience
into believing that innovation means invention or that invention leads to innovation.

IP Australia and the Innovation Patent perhaps inadvertently exacerbate this confusion.

In this matter the Australian Government has proclaimed certain definitions of innovation as lesser cases of
invention. An unintended byproduct is that innovation is described and seen as less inventive and therefore
invention is a more difficult and grander objective than innovation. This nuance is unfortunate since
innovation, and not invention, is critically important for almost every business.

The Australian Government has promoted the Innovation Patent heavily as a tool for small business – to
protect assets and help create wealth through competitive advantage.

While the Innovation Patent is subject to a debate of its own, the issue for this context is that it and the
Standard Patent are both tools related to invention – an extraordinary event for most businesses. They are
not related to innovation and the management practices necessary to be an innovating enterprise.

An innovative enterprise emanates from change leadership

The foundation of an innovating enterprise emanates from change leadership. Change leadership, starting
from the top and cascading down, requires “…the willingness and ability to change what is already
being done just as much as to do new and different things. It requires policies to make the present
create the future.” Drucker, Management Challenges for the 21st Century, Harper, 1999.

Drucker explains the need for regular management review and the organized abandonment of products,
services, customers, distributors, and businesses. As a part of change leadership practices those reviews
and discussions inevitably touch on, discover or inspire innovation.

Potential innovations can also be explored and identified through a formal process of management-initiated
opportunity review.

For example opportunities and dangers will be identified by reviewing and assessing unexpected successes
and failures from within and outside the firm and incongruities in markets, distribution channels and
customer demographics. From those management reviews opportunities of interest can be further
examined and relevant tasks defined and assigned for action.

It should be noted that these so-called management reviews, incorporating the exploration and
identification of innovation, should be done at all levels of management. That is, from the Executive Team
through to the supervisor meetings on the floor or in the departments. These techniques are tools of
meetings where staff meet to review progress against company goals and objectives – not the exclusive
preserve of the top team or formal “managers” as such. By following this path the need for such external
figments of “innovation” as the “Suggestion Box” are eliminated. Innovation enquiry techniques, and
tools, become a part of the methodology of meetings.

A further change management technique is also important to generate innovations – what might be called
continuous improvement. By recording and reviewing innovations in the field of a company’s core
business, by whom, and how, and what was known or decided within about these innovations, new
learnings and capacities and opportunities for change will develop.

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

Techniques In Change Leadership Which Support Innovation

1) Regular management review and the organized abandonment of products,


services, customers, distributors, and businesses.

2) Reviewing and assessing unexpected successes and failures from within and outside
the firm and incongruities in markets, distribution channels and customer
demographics.

3) New learnings and capabilities and opportunities for change will develop by recording
and reviewing innovations in the field of a company’s core business:
a. by whom, and
b. how, and
c. what was known or decided within our firm about these innovations.

The foundation of an innovating enterprise is change leadership

Fig. 3 – Table of three techniques in change leadership which support innovation as management.

Being part of an industry cluster enhances this type of review of innovations in a field of commercial
endeavour. Clusters by their nature enable better and faster information flows and deeper industry
understanding, and thus help firms compare and contrast their performance and initiatives. Thus a key
benefit of industry clusters is the potential for more innovation, and within a framework of more effective
change leadership.

Some innovations require new core skills

During the process of change management and comparative innovation reviews, it could be that a company
discovers some key new innovations, but lacks the relative ability to commercialize them.

In that case the core competency of commercialization might need to be developed in order for the firm to
prosper. Here, unlike in the case of invention, these skills are unlikely to be outsourced or bought on
demand – because to do such would be suboptimal to the normal change leadership skills and value
creation skills of the firm.

Thus change and innovation are linked, and innovation brings about change including to some of the core
processes of the firm including the relative ability to bring key new innovations to market. This is
generally very different to commercialization of new inventions but rather a building of skills around
current core abilities.

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au
Innovation is dangerous for your health! © 2002 Walter Adamson

Innovation is part of best practice management

Effective change leadership is but one characteristic and competency of an innovating enterprise. But the
message here is that it provides a home and a framework for innovation, and a home and focus for
associated notions of the learning enterprise and knowledge management.

Innovation competence, the learning enterprise, and knowledge management in this model are related
components of change leadership.

This provides an innovation framework which is not about invention per se, but where invention may be
an unexpected bonus that should be managed separately.

The framework gives innovation a place in the culture and processes which is not shrouded in mystery and
legalese and extraordinary expense. And innovation can now be seen as a part of management reviews and
assessments of business opportunities at all levels, and not a distraction from normal good practice.

Build innovation starting with effective change leadership

The steps to build innovation start with building effective change leadership, then introducing innovation
review and assessment competence, followed by complementary use of knowledge management and
corporate learning initiatives.

Conclusion

Those companies which become distracted about innovation, or even worse invention, are certain to suffer
economic value lost. And that is a poor return on the taxpayer’s investment in “innovation” through the
government programs.

On the other hand, those companies that already understand that effective change leadership is a precursor
to effective and purposeful innovation are unlikely to gain real insights or value from the current innovation
industry.

As for the innovation industry, its lack of clarity and purpose, and confusion of message will inevitably
cause setbacks. Hopefully some rethinking and redirection will occur before substantially more
government funds have been expended.

To focus on invention is fabulous, but to confuse it with innovation destroys corporate value and our
tax value.

Digital Investor is a boutique advisory service specializing in insightful and pragmatic


interventions in three fields – business reinvention strategy; commercialization; and
innovation as change leadership. We specialize in the information technology industry
and work at CEO-level and with heads of business units with significant corporate breadth
and responsibility for performance. Walter Adamson has advised publicly-listed and global
IT companies, and has direct experience in sales, business development, marketing
strategy, management and the conception and implementation of business strategy
initiatives. He holds an MS in Computing Science and advanced management training from
Mt Eliza Business School, Australia. Contact: adamson@digitalinvestor.com.au

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Digital Investor – Business Reinvention Strategy; Commercialisation; Innovation as Change Leadership.
The original published at: http://www.digitalinvestor.com.au/ adamson@digitalinvestor.com.au