How to easily unlock innovation with an easily deployable method
We are all under the illusion that we are innovating at an unprecedented pace. But in reality, we are mainly improving technologies that have already been invented in the last decades and even centuries. The main drivers of the breakthrough innovations are the information age and the network effect that led to an improved discovery process. Moreover, we are getting better at commercializing many of these discoveries.
However, breakthrough innovations can occur even more frequently. To do so, we need to experiment more and ultimately fail more. Unfortunately, the process of trial and error is perceived to be risky by most people. An inherent property of human behavior is unintentionally deterring innovation.
Some companies, particularly those whose business models rely on such experiments for growth, recognize this process as a key success factor and see consistent returns for their shareholders as a result. However, from start-ups to large corporations, many companies fail to realize that the type of innovation required for today’s enterprise is based on repetitive and consistent experiments: a strategy that can lead to a substantial competitive advantage for any business. Moreover, using this method and taking a risk for a potential reward can be far greater than sticking to a conservative one.
The trick is in the discovery process. You’ll need to identify opportunities, unlock them, test them, and then unleash them. Management can find it challenging to identify the possibilities available to them. However, this can change with the right mindset and framework for discovery.
I have worked with over 400 organizations in which I have analyzed innovation approaches. What I’ve found is that in 70% of companies, the kind of innovation that worked best isn’t innovation at all. In fact, most companies have hidden opportunities within their existing operations, but the process of discovering and unlocking such opportunities is the tricky part.
This article will provide a simple framework that will help unlock new opportunities when applied correctly. From here, we can repackage and reallocate these resources throughout business areas that have uncovered potential.
What Is Innovation?
Arguably, some of the most significant breakthrough innovations of our century include those such as penicillin, vaccines, electricity, power, telecommunications, media broadcasting, cell phone, jet engine, nuclear energy and bombs, rocket technology, combustion engine vehicles, digital media, internet, smart-phones, electric cars, social media, etc.
Now, let’s quickly examine how we invented these so-called breakthroughs. While many were discovered through trial and error at some point in time, it wasn’t until much later that they became known as breakthroughs. The point here is that most of these innovations are not entirely new. They were already discovered but haven’t been identified as breakthroughs until years or decades later.
For example, consider how some of these innovations materialized:
- mRNA human treatments and vaccines, including COVID, were made possible by discovering CAS9. A technology widely used in the production of yogurt culture, adopting the CRISPR system as an antiviral defense mechanism. CRISPR and spacers were discovered in the 1980s and came to light in 2002. But it wasn’t until 2013, after a series of publications on the discovery, that CRISPR-Cas was identified as a breakthrough.
- Penicillin, an antibiotic medication, was discovered in 1928 by Scottish researcher Alexander Flemming when he was experimenting with the influenza virus. After a vacation, Alexander returned to find that a mold had developed on an accidentally contaminated staphylococcus culture plate.
- The arrival of Facebook after the FaceMash website had an accidental viral effect on Harvard Campus.
The list does not stop there. Countless other products have been brought to the market labeled as innovations. For example, look at how the internet has evolved into what it is today. Another example is 3D printers; they have surprisingly been around since the ’80s and were primarily used in prototyping between the 1980s and 2000s. However, it wasn’t until recently that 3D printing suddenly appeared as a breakthrough and changed the face of manufacturing. It happened when many new businesses and commercial opportunities were made possible by pushing production capabilities out to the end-user.
The most significant innovations in human history are those we have found using frequent experiments and many failures. So what stops us from experimenting more today?
Prospect Theory — One of the Culprits for Lack of Innovation
It’s in our nature as humans to be risk-averse. However, we also tend to be overconfident, making for a dangerous combination. Daniel Kahneman referred to these decision-making tendencies as “Prospect Theory,” which he explains in detail in his best-selling book “Thinking Fast and Slow,” detailing his lifelong research on behavioral economics. Kahneman received an award for his findings with a Nobel Prize in 2002.
Kahneman’s research did not only show that we humans are risk-averse, but he also went on to detail the depths of this behavior. As it turns out, people dislike losing two to three times more than they like winning. Therefore, it’s not surprising that we are risk-averse when it comes to trying out new things.
There’s A Silver Lining
Breakthrough innovation is not always required to innovate and be a leader in an industry. Any company can be competitive and drive innovation internally without needing to rely on huge budgets.
I have developed a process called Business Model Hacking, which includes four different approaches to unlocking innovation. Some approaches are more complex than others, ranging from business model hackathons that can be used in a group setting to simple frameworks conducted by a single individual.
Business Model Hacking has been tested and proven to work across dozens of companies across sectors. These companies range in size and scope from mom-and-pops to large businesses, which I will get into in another article.
Here, I will illustrate how one such approach can work by analyzing the sources of revenue in existing businesses. The approach works by identifying and unlocking hidden innovations already in existence. Such opportunities may already have been experimented with and proven in many cases but remain undiscovered and unexplored. The best part is that the process of unveiling these opportunities costs almost nothing and can be adopted by anyone who maintains intimate knowledge of a business.
You start by breaking down your business into what I call ‘Natural Fractal Units.’ The definition of a ‘Natural Fractal Unit’ is a unit that:
- Is structured around a clear, demonstrable, and unique value proposition for which customers are willing to exchange money for its goods and services.
- Is defined by the market — for example, stand-alone companies facing customers and competitors.
- Is the natural vehicle for developing/renewing the capabilities that underline the competitive advantage.
- Can have authority and responsibility to develop and execute key strategies.
- Has control over resources that are necessary to implement their strategies.
- Allows managers to focus on key strategic and operating decisions necessary to drive the business and create a superior value proposition.
- Imposes the basic accountability where the need to earn an adequate profit is realistically computed.
- Encourages rational decision-making throughout the organization.
- Has accountability for revenue and profitability.
- Develops the next generation of leaders by driving a P&L perspective down into the organization.
It is called NFU (Natural Fractal Unit) because the unit should exhibit a fractal’s “scale-free” characteristic. If you are not familiar with fractals, they are based on the concept of fractal geometry, self-similar shapes. In the same way, businesses and business unit nucleus have the self-similarity and scale-free features of fractals. Once you identify business fractals, you can break them down into smaller parts. The idea here is to extract the fractal components from your business in order to evaluate them using the upcoming steps.
To begin the process, start by segmenting your income streams into NFU’s by layering revenues and potential revenues across eight dimensions as follows:
From here, you can take the NFU dimensions and plug them into a matrix that will allow you to extract the NFUs from ongoing business operations.
Once that is completed, you can run the NFUs using the flowchart below to identify the suitable options and get them on track for growth:
It is important to note that this approach will only work if you already have a running business with proper revenues, clearly identifiable customers, and a profit and loss statement. If you are in a position to adopt this approach, you will be sure to find new ideas or unlock innovations that you likely didn’t know existed.
Once you have identified new ideas, it becomes a matter of prioritization and portfolio management. There are many methods you can use to validate and assess the potential for each idea. You can test and improve your concepts through market feedback using simple market testing processes and validation. For example, processes such as “agile implementation,” “jobs-to-be-done,” and “working backwards” methods are a few of many such methods that can be adopted to test and improve ideas.
Throughout time, we have discovered many incredible innovations that have made the world what it is today. However, unbeknownst to us, we have held ourselves back due to the nature of our decision-making processes that led us to choose the safer and more predictable options. As a result, instead of progressing the way we intended, we allow the fear of failure to get in the way of the next big innovation.
Many businesses focus only on improving or facelifting what they already have, which can be profitable in the short term. However, sticking to this routine means nothing new goes into the long-term pipeline. Without innovation, businesses can quickly fall behind, especially if competitors experiment and uncover new ideas or if disruptors enter the market. Changing our mindset and opening ourselves up to failure is the first step toward innovation.
With the zero-cost and simple approach outlined earlier, there’s no excuse not to explore and experiment more. It is time for us to step out of our comfort zone and approach the business world with a more open mindset. We can explore new possibilities, uncover unique opportunities, and possibly our next breakthrough by using this simple method.
If you enjoyed this article and want to learn more from my experience, check out these articles:
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