Jun/095
Exponential Innovation & Institutional Demise
Innovation refers to incremental, radical, and/or revolutionary change. Change in thinking, products, processes, and/or institutions & organizations. It’s fueled by creative people on an unending journey to make things faster, smaller, cheaper, cleaner, simpler; people who put their heart and soul into their craft without regard. Institutions or organizations are deliberately and intentionally created by people. The development of functional institutions in society in general may be regarded as an instance of emergence; meaning, institutions arise, develop and function in a pattern of social self-organization, which goes beyond the conscious intentions of the individual humans involved. It is the mechanical and traditional way effort is coordinated.
We live in exponential times. Innovation grows in an exponential manner. It’s not linear. We think and intuit in a linear fashion. For example, if you walk 30 steps linearly (1,2,3…. 30) you’ve taken 30 steps. If you take 30 steps exponentially (2,4 8 16…. ) you get to a billion. Quite a difference, no? So if we live in exponential times, what’s the future hold for innovation as well as institutional organization? Again, if we are to look ahead, we need to look to the past for some perspective.
Why Create An Institution?
How do we get anything done – traditionally speaking? If you want to coordinate the work of a group of people, you start an institution. You raise capital, develop resources in order to coordinate effort; basically, you start a company. The company can be private or public. So thinking of a company as an institution, you use the charter of this institution to coordinate the effort needed to create output. What we are talking about are coordination costs. As part of creating an institution in order to coordinate effort, part of that coordination costs includes the collaboration and innovation required to re-invent and stay relevant in your market.
Institutional Extinction?
We’ve seen the imploding of institutional imperatives coming to fruition for awhile. I believe there is more to this than what this post is addressing (such as institutional anonymity leads to moral ambiguity).
Institutional failures are happening all around us. In a nutshell, there is no faith in our government institutions, financial institutions, educational institutions or our corporate institutions. The net outcome creates an environment ripe for solutions. Small grass-roots solutions that have the ability to spread globally in seconds, take root in weeks and evolve tangentially into real organic solutions devoid of institutional friction or myopic disconnects. There is also a pattern of indifference until it’s too late which reminds me of a great quote:
“Every CEO will at least give lip service to the idea that the world is moving faster and that we need to do a better job at innovation. But if you go into an organization and ask people to describe their innovation system, you get blank looks. They have none.”
– Gary Hamel
“Built To Last” Doesn’t Mean What It Once Did
The problem with the traditional institutional model more relevant to this post is that it is outdated. The fundamental requirement for innovation is communication. Communication between the “creative people on an unending journey to make things faster, smaller, cheaper, cleaner, simpler.“ Another problem is, this model is not well suited for the “people who put their heart and soul into their craft without regard.” There is institutional friction that is unavoidable and deflating to the best and the brightest. Don’t believe me? Look at what’s has been happening over the past 80 years. You cannot help but notice the lifespan of an average institution is falling thru the floor.
This graph is powerful, no? Notice how the market corrections are a big driver. So why else do you think this is happening? You agree that we live in exponential times, right? Well if we live in exponential times, then the speed at which we need to adapt, relearn, change or in essence, Innovate, doubles every year or two. Larger institutions, by their very nature, are incapable to respond. Consider that in many cases that takes at least one or two years to recognize there is a problem to even begin to solve it. By the time many of them solve it; well guess what. They’re stuck solving a problem that is now irrelevant and distracting them from solving the new issues at hand.
The Lack Of Institutional Effectiveness & Agility
What else has happened during this timeline? Think about the methods and means at which we are able to communicate. Telegraph, Telephone, Travel, Logistics, Radio, Television and now cram all of the affect of those communication tools into the internet and you have increased the effectiveness and cut the cost by almost a trillion. There is “Flat World Coordination” that has real potential to allow smaller companies to better serve the larger’s customer base at a fraction of the cost while adding more product and/or service value. It’s this “Flat World Orchestration” that is changing the competitive landscape for the larger institutions.
Are You Saying That Institutions As We Know Them Are Dead?
Successful ones as they traditionally operate? Yes. I am saying that in shorter and shorter lifespans become… dead (hence the above graph). Traditional institutions will survive and thrive when management, board members and/or shareholders are able to step out of the “what we did yesterday will work for us tomorrow” mentality. In order to survive for the longterm, one has to recognize that the things that got you where you are will not get you where you optimally should be. I was asked by a mid-market CEO recently about what are the most important things to understand in order to adapt and compete. I came up with 6 that I feel are undeniable and universal:
- Institutions Are Inherently Exclusionary – Solve This
- Your Best Ideas Aren’t Necessarily Your Own – Accept This
- Innovation Is Now A Global Collaborative – Leverage This
- The Tools Of Innovation Are Ubiquitous – Believe This
- Combine The Best Talent And Tools Without Institutional Regard – Break Down Silos
- Your Best Agent Of Change Is Probably Already Working For You – Forget Consultants
Embrace This Paradigm And You Will Stumble On Bigger And Better Opportunities. Plan, Do, Study, Act… Repeat. So what else is happening in market corrections?
Small Will Be More Influential And More Plentiful
So stepping back a bit, what are the type of companies that are winning in this environment? In 2 words, Small Business. What to you think the net outcome of layoffs from the financial mess? It will be more small business who are more capable to adapt and who will drive us out of our current situation. Look in the troughs in the above graph that represent market corrections. People are still working, more and more companies are being created. Every correction leads to wider acceptance of newer innovations and knowledge that people take from their corporate institutional jobs they lost to their new ventures as business owners. The other paradigm is the concept I put out as “The Rise Of The Individual In A Flat World.” There is a great book that will describe this phenomena better than I called Free Agent Nation: The Future of Working for Yourself
There is a huge upswell of activity and opportunity for entrepreneurial groups and individuals who find themselves either inspired to and/or laid off and in a different predicament due to mass layoffs. As history begins to repeat itself, this is the best time to find your niche and create now and competitive value. Small business activity flourishes in economic downturns and it has every single time there has been one. So if you are recently laid off or are worried you might be. Start taking some bold actions toward finding what you can put your heart and soul into without regard. Rest knowing that there is no better time to be an entrepreneur. Small IS your competitive advantage.
Leave a comment
No trackbacks yet.
3:41 pm on July 4th, 2009
Futurist ray kurzweil describes this exponential trend, asserts human culture will change as much in next 100 years as previous 20,000: http://mediadocumenta.net/?p=208
3:35 pm on July 7th, 2009
[youtube IfbOyw3CT6A http://www.youtube.com/watch?v=IfbOyw3CT6A youtube]
Good catch. Here's a video for those who are wondering about Ray Kurzweil
7:36 pm on July 10th, 2009
Very interesting article. I particularly like the graph of the average life of a S&P 500 company. I also agree that institution will be less important. The industrial revolution was about the aggregation of resources to produce economies of scale, the information revolution will be about dis-aggregation.
The only concern I have with the exponential growth in innovation thesis is that it makes it sound inevitable. All we have to do is sit back and wait and this amazing innovation will take over. I think the innovation rate in the U.S. has significantly declined in this decade compared to the 90s. In my opinion, little known regulations are killing off innovation in the U.S., see http://hallingblog.com/2009/05/26/innovation-regu...
2:42 am on July 11th, 2009
Interesting take Dale. I do agree with you about regulatory purgatory and what it is doing for U.S. firms. But what I believe is that whether it's regulations or Sarbanes Oxley, innovation doesn't rely on institutions anymore – government or otherwise. I believe your point bolsters the argument that institutional demise is happening. However, in a world without borders and with more power shifting to individuals, the boat's left the dock already.
From one of my other posts: Social Media vs Institutions – "Denial, Anger, Bargaining, Depression and Acceptance. You might make the connection to the Kübler-Ross model’s 5 discrete stages of how people come to terms with dying. This is how many institutions and organizations will come to terms with these new, communication, collaboration and coordination platforms."
I think most institutional entities are in the denial, anger and bargaining stages with regard to "capping" the freedom to innovate. I would also contend that "The Genie's Out Of The Bottle" and will mostly be done in vain and at the expense of America's tax payers (what the hell else is new).
Great observations in your post Dale. You definitely gave me new perspective as to how to look at this.
3:20 pm on July 13th, 2009
George there was an interesting book written in the 90s about governments losing control of money. I think it was written by a fomer CEO of Citicorp. This book supports you thesis of the demise of institution. (the book may be called "Cybercash").
Despite this I doubt that innovation or the economy can thrive in complete anarchy. Some form of property law, contracts, torts, criminal law, the courts and police to enforce these are going to be necessary.
I hope you are right that innovation can proceed despite regulatory obstacles, but the last decade in the US has not proven to be highly innovative and I think it is because of these regulatory obstacles.