For the Academics out there or those interested with the actual theories and models as quoted in academic literature, I suggest you jump over to the thesis document where I detail a comprehensive list of strategic innovation theories. My intention here is to appeal to those not keen on reading pages of academic jargon, but rather to give you a more practical sense about what I am trying to say. Although my research targeted the residential property industry, I will expand the thinking to wider areas. As ever, the theories and models are not of my own making and for a comprehensive list check out the references in the thesis document. As the largest section in the thesis, chapter 2 will be broken down into parts… Enjoy!
Strategic Innovation… You WILL get sick of me using this phrase, but its impact and importance is pivotal to an organisation. The first step of my journey was to describe Strategic Innovation. Now there are a LOT of definitions for innovation, strategy and strategic innovation out there and just reading “the Thesis” will tell you how many authors out there write on this topic. But rather than boring you, I want you to be able to walk away from this article feeling more ready for the needs of implementation.
The terms innovation, strategy and strategic innovation are interchangeable at times, which is not always correct. Innovation can only be strategic if it provides ongoing innovation through different forms and strategies (e.g. incremental used in conjunction with radical over a period of time) rather than as a one-off event. What does this point to? Well a project is just that, a project, occurring once and then life moves on. For a practical example, think of a convention or a conference. You arrive at the arena with your ticket and the multicoloured themed event greets you with drinks, entertainment, invigorating talks and you leave feeling great, sad, inspired, drunk maybe. The event closes up, you might sign up to some spammy things and wait for next years fantastically different show promising to use blue lighting instead of red. It seems like I have a thing against events, but no I don’t lol. The point is that the event is over. Sure in some scenarios there will be on-going somethings (i.e. email, data, bla bla bla) but its over and it hasn’t led to the benefit of anything else. Maybe next year you will get better speakers, private rooms but it will probably only come into play when the next event comes around town (maybe some innovation after-all!). There is unlikely to be a change in leadership thinking towards innovation, or cultural shift leading to an environment of innovators with a bottom up approach to ideation.
Now what is this on-going innovation then. Well let me put it to you this way, do REITS pay dividends and then forget about it? No their (arguably) sole focus is to find ways to pay dividends year in and year out by selling assets, acquiring more valuable tenants that improve their portfolio, beef up the board, invest in international portfolios, bring in culture shifts to ensure profit… but what are the innovation yearly targets. I challenge an organisation (except Emira) reading this to put forward their innovation targets. And don’t give me the “going green” bullshit like that’s not something you should have already done, but how is this turning your organisation into the property organisation of the future.
Enter the portfolio view, which sees on going innovation at the heart of strategy. Its not about picking incremental, radical or disruptive but building the ability to figure out how to use and find these means in isolation or together. What the academics can’t give you is a formula. What they talk about are guidelines. It is paradoxical statement but defining innovation to me in theory is sometimes pointless. Sure we give different forms of innovation titles and character (i.e. incremental = slow over time and low risk; Disruptive/Radical = fast high risk but high reward) but WHAT it actually is in your organisation only YOU will be able to tell. Methods of drawing it out can be suggested sure, but the tools of innovation need to be harnessed on a case-by-case basis.
So with the focus being on Proptech, we need to determine how technological developments have the ability to impact on a strategic model, which presents opportunities to target new market segments or provide a more effective means within which to execute strategic innovation. Well that brings us to our next hot topic, the business model. But how do innovation, business model and technology fit together?
Business Models, Innovation and Technology
Firstly, what is a business model? Again definition not agreed upon, but you can say that business models are “logic and activities” that determine how an organisation creates value and aligns firm activities to capture this value. Basically the “how you do business.”
Business models are not necessarily linked to technology, and they are more than capable of experiencing innovation without technology, making reference to “business model innovation”. Some authors actually posit business model innovation as the driver of innovation, and not technological development. Why is this important? Well successful business models provides an organisation with the pathway to improved profits, and a platform for technological implementation. In a nutshell, the business model provides the grooves on the Lego block that allows technology to fit into, Capiche?
Ok, so you might be unsure here, but lets use plain English… I can provide you with the best tech out there, and guess what, the lack of “Lego connectivity” will prevent the implementation of this tech! If you are doing this, you risk value leakage or prevent the technology from enabling on-going innovation and thus limit its strategic impact. Let’s say the technology partially fits on the business model Lego block, well you will be missing out on the functionality of this structure. Every stack on top of that will also be compromised going forward. Imagine that groove to be leadership development, developers and culture, you are missing a piece of the structure that enables capitalization. Also, what if that technology is just the beginning of something great, but the means to know this and use this are non-existent.
Technology does however have the ability to change everything! BUT to enable this tech (now and on-going) the business model needs to provide the path for this tech. Flawed business models can only survive so long! It is VERY important to understand that although first to market normally wins the lion share, in technology this is rarely the case. In these cases the market is often only imperfectly seized. Just think of Uber, no one would have thought that competitors would abound, but they did. Right here at home Bolt is the main competitor and “scooter taxis” in South East Asia have stormed the market. Now I am not saying that Uber has a flawed business model (and I am not saying it doesn’t either) but the point is that technology can be altered in the hands of a business model, like putty, and where you are not ready for the next move (i.e. to defend your market share) the attack may drive you out of the way as quickly as you walked in.
Why is the business model important then? Well its sheer presence enables an organisation to capture value and ensure that the organisation has the necessary skills and processes needed to incorporate technology with continuous learning.
How is this done? Well one way is through the development of dynamic capabilities…
Now what the hell is this? Lets start with the academic example. Dynamic Capabilities have two levels, firstly, “micro-foundations” that impact internal structures (management decision making etc.) and secondly “high-order” dynamic capabilities sense and seize opportunities, and transform business models. There are no simple definitions for this but if I had to sum it up, it is basically the way an organisation scans and seizes opportunities, with the aim of these continuous developments leading to transformed business models over time and generically.
Dynamic capabilities have a close relation with internal resources as they influence and are influenced by resources. This “Resource Based View” is premised on the development of internal resources and structures, which positions an organisation within an industry or environment, which through strategic decision making enables the development of sustained competitive advantages.
Although the resource based view is deemed to create and sustain competitive advantage, a notion that is important in gaining a competitive edge, dynamic capabilties act as the mediator that transforms these resources by reconfiguring them to adjust and react to dynamic markets. The Dynamic Capabilities View (DCV) positions DCs as the means of adjusting resources by “shed(ding) resources, integrat(ing) them together, and recombin(ing) them—to generate new value-creating strategies”.
I took those paragraphs from my thesis but they just explain the core of the theory so nicely. In a nutshell however dynamic capabilities allow you to scan the environment, and seize opportunity. The ultimate goal is to enable the transformation of the business model in line with the continuous scanning and seizing. An example sounds something like this… You are an automobile organisation that has recorded year on year profit (YAY), but the change is coming and you need to figure out what it is. You hire a team of experts who are on the look out for technology to change the game. They are then SENSING! You investigate and find out that you can test a certain “discovery” but using a hybrid model that is eco-friendly, in line with market needs and thus SEIZING. After year on year growth, and increased competition in the old way you move to produce solely environmentally friendly vehicles and start testing autonomous driving cars = TRANSFORMATION… BOOM! So this example is a couple of organisations mashed up into one and not based on an actual success story, but it drives the point. The image below helps with this…
SO technology can be seen as a resource and its impact on dynamic capabilities (and vice versa) is seen as widespread, whereby the former can act as the basis of adapting to a new environment by providing means to adjust resources, or the means within which DCs need to innovate BMs to react to a threat or adjust to seize an opportunity.
In a nutshell, dynamic capabilities assist an organisation to transform the resources by:
• adopting something new;
• reconfiguring something existing; or
• disposing of that resource no longer deemed strategic.
Now that we somewhat dealt with these core issues, the question remains, how does one innovate? The thinking below looks more at established traditional organisations.
How to Innovate?
Why is this important? Well its quite simple, being accustomed to doing something over time makes it difficult to change. It is sometimes futile to abandon what works and mess with a winning system. The strategy one can embark on is often dictated by your current position. For example if you are an organisation in decline, it might be worth it to try a new business model, but be aware that you most likely have one chance to get it right. That means if you have been adverse to innovation you best use some of that luck right there to get a new spin on life. How would an organisation then go about using innovation to win back the market, try out new methods, keep an eye on competitors… here are some ways (there are more obviously):
- Concurrent Business Models
Two business models at once. With a few ways of doing this the main idea is to have two models conflicting against each other. One way of viewing this is to create a new business model/partner with an existing firm while the traditional model is still beneficial. You don’t need or want to abandon your traditional model, but you do need to try something out. In these cases the strength of the existing model can carry the new one providing means to either merge, adopt the new way or improve the dynamic capabilities. Some organisations would be more comfortable with the “business unit” approach, whereby the organisation retains one model, but has units with these “new” business model targets.
The danger of a “business unit” approach is that the traditional method never really lets go of the reigns, and stifles any growth. On the other hand, the former approach could create too much of a divide not really benefiting the organisation. Normally the problem with these approaches (especially the units) is that the traditional model sits at the top of the food chain, meaning the only intended benefit is to its goals.
The new unit/model may prove to make the traditional model redundant causing conflict that is unmanageable. A real estate firm has landed in hot water over this. They acquired an organisation to run as concurrent to the traditional. The former looks at low cost commission, and the traditional luxury style agents. Guess what… the agents were pissed because they were being attacked. Conflict is meant to be good in certain cases, but not where the traditional model is the alpha and has the last say. This old dog dictates the way and that’s that. It makes sense as well in some cases as the old model is still effective in this case, and the new model still being tested. This is where these organisations need to be ready for the integration and the backlash on traditional models. A NOTE TO new organisations…. be careful of where you sit in an acquisition by a bigger fish. There is no doubt that in the conflict, you are likely to be canned.
An organisation stuck in a funk, but still financially stable can use a concurrent model to test the waters by sensing for disruptive or radical potential and/or utilizing incremental innovation to slowly develop. This would use the strength of the traditional model to test how to innovate so when you need to, you are somewhat on the way.
2. New Business Model
Apart from the implementation of concurrent models, organisations can adopt a new
BM at the expense of the traditional one, that focuses on resource and structural adjustments to the organisation. Success, however, hinges on an organisation’s ability to allow the new BM to be central and unhindered by the cultural and historical context. It is also a dangerous game and is only really chosen when an organisation is down and out, or has planned to make the move for some time having found a previously unknown market for example.
There needs to be caution in this approach however… read number 3 and then the final point as to why.
3. The Traditional BM is fine, or is it?
This point may sound arb compared to the rest of the article, but you don’t need to abandon the traditional model in some cases. This could be where the disruptor is not targeting your market segment, which means you do not need to react. But you still need to keep your wits about you as these bottom feeding low-end competitors tend to expand and march upmarket in search of more opportunities.
Not all models need to innovate, but you should always be scanning and it does not hurt to try right? This might seem like a waste of resource but think of it like playing the guitar. Its irrational to assume that you can pick up the guitar and smash Led Zepplin, and shred the insane guitar solo on Stairway to Heaven in your first try (love the song! so follow the link for some fun)? So why do you assume you will be able to innovate! Sure maybe you were a guitar player when you started out with the Beatles (e.g. you innovated at some stage) but the audience is different now and they want something new to what you know. Learning to play guitar in this sense takes time, and needing to learn it overnight will stack the odds against you. As Nassim Taleb said that we cannot predict every single outcome and risk that might befall us, but we can tend to our own fragile state. Often we blame the occurrence of some risk and event, by lamenting the lack of “surveillance” to detect this threat through forecasting and risk proofing! But the truth is no one can predict everything, including a competitive business model ready to take you on, so what you can do is improve your options. Nassim also laments the academics providing theories to practical examples, which I completely (and ironically) agree with. This research is not meant to tell you what to do, but hopefully it inspires you to challenge yourself from the “what you know” to the “what you don’t know”.
Are you aware of the innovation capabilities of your organisation? Do you even know what those are? If you do well done, and where on the food chain does this innovation potential sit? Is it by Human Resources, or by dividend payouts. When an “Uber” style organisation comes around to threaten you will you blame the team supposed to assess your risk or will you look at the fragility that you developed over years of inaction? Yea I know you might not need innovation, and that is fine, but ask yourself this question, how many organisations exist from 100 years ago, and find out why those that do are still around. I may not be the expert on what Nassim Taleb calls the Antifragile, but his points on innovation are important in light of the “explorer” seeking to challenge their fragility and embracing the fear of failure, which fear can make it difficult to accept the needed change.