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Leadership

Innovation Isn't About New Products, It's About Changing Behavior

Companies are not so much in the business of what we buy, but the way we act.

Behavior is the unknowable variable in every innovation, and it is the variable that most determines the opportunity a new business model has to evolve and take advantage of the new behavior.

It's The Behavior, Stupid

We are at the tail end of an era that has focused almost entirely on the innovation of products and services, and we are at the beginning of a new era that focuses on the innovation of what I like to call "behavioral business models." These models go beyond asking how we can make what we make better and cheaper, or asking how we can do what we do faster. They are about asking why we do what we do to begin with. And the question of why is almost always tied to the question of how markets behave.

When Apple created iTunes it didn't just create a faster, cheaper, better digital format for music, it altered the very nature of the relationship between music and people. eBay did not just create a platform for auctions, it changed the way we look at the experience of shopping and how community plays a role in the experience. When GM created OnStar it didn't just make getting from point A to point B faster, it changed the relationship between auto manufacturer and buyer, and fundamentally altered the reason we buy a car.

Google did not invent Internet search—there were nearly fifty software vendors delivering Internet-based search, some for as long as twenty-five years before Google!—but Google changed the way we interact with the Internet and how our behaviors are tracked and analyzed, allowing advertisers to find and pay for buyers in a way that was inconceivable before.

All of these are examples of innovations in behavior that led to entirely new business models. Yet we continue to be obsessed with technology innovation. To paraphrase James Carville's now-popular political pun, "It's not the technology, it's the behavior, stupid."

The greatest shift in the way we view innovation will be that the innovation surrounding behavior will need to be as continuous a process as the innovation of products has been over the last hundred years. The greatest shift in the way we view innovation will be that the innovation surrounding behavior will need to be as continuous a process as the innovation of products has been over the last hundred years. It's here that the greatest payback and value of innovation in the cloud has yet to be fully understood and exploited.

Unfortunately, far too many of us are stuck in an old model of innovation—just as surely as we are stuck in line waiting to take part in the new one.

Innovative organizations are those that can depart quickly from their planned trajectory and jump onto a new opportunity; they're organizations that recognize and take an active role in introducing new behaviors that were unknown. It is ultimately the speed with which companies do this and the willingness to experiment in new and unanticipated areas that determines the extent to which their innovation is "open."

This changes the idea of open innovation to mean more than going outside the company to find new ideas from experts; it means developing a collaborative innovation model that intimately binds the market to the process of innovation, in lockstep. That does not suggest that companies are held hostage by their customers, who only know to ask for incremental innovation in what they have already experienced.

Instead, it means that companies need to push the envelope of innovation based on observations of what a market's behaviors are and then work closely with the market to identify how innovations can add value in unexpected ways.

Cloud-based Dialogue

The cloud is the ultimate open system for this sort of innovation, one that is influenced by factors that are both unknown and unknowable. In other words, no amount of time, information, focus groups, or traditional market research will increase the certainty with which we can innovate. The most important thing to do in the cloud is to realize that innovation must involve openness and disruption. Then we have to minimize the risk and uncertainty so that we increase the opportunity for finding novel approaches to solving problems and expand the ability to quickly scale, so we can address these problems once a resonant nerve is struck.

This is precisely the type of innovation that companies like Apple, Google, Facebook, and Netflix have enabled by constantly challenging their customers to adapt to new offerings. For Facebook, this creates a fairly consistent market tension. Whenever Facebook delivers a new feature, such as its Timeline capability, there is an almost immediate market backlash, which is followed by a lull in the market's pushback and an eventual acceptance and integration of the new capability. This dance is repeated on a regular basis. While it does create some degree of tension, the result is a steady disruptive force that provides both Facebook and its users with more than just a path to sustained innovation; it also provides a periodic jump to a new type of behavior that would otherwise be seen by most companies as incredibly risky. The benefit for Facebook is that it has a built-in cloud that allows any innovation to be immediately presented to its customers.

This sort of dialogue between the marketplace and its providers has never been as pronounced and apparently dysfunctional as it is in the cloud, where voices are amplified to an unprecedented magnitude. But that increase in the decibel level of market pushback can be a death knell for innovation. The cloud is not inherently for or against innovation, any more than the Internet is. Both are simply new platforms for conversations that have the power to drive both positive and negative momentum. And it is this point that companies need to pay especially close attention to.

Innovation is always a tense conversation between affected parties. That will not change and it should not change. It is the basic mechanism by which we align ideas with the value they can produce.

Reprinted by permission of Bilbiomotion. Excerpted from Cloud Surfing: A New Way to Think About Risk, Innovation, Scale and Success, copyright 2012 Thomas Koulopoulos. All rights reserved.

[Image: Flickr user Robert Fornal]

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