Most companies are always keen to create innovative products and services.
They always question on how do companies like Uber, Airbnb, Amazon, or Tesla succeed to create innovation and add disruption into their business?
Is there is a way of thinking and methodology to push forward innovation on adapting in our business? How do we start?
After some study, we found there is some ways of thinking and methodology to create push forward the innovation in our business.
First Principal Thinking - The Way of Business Disruptor Thinking
By definition, A first principle is a basic proposition or assumption that cannot be deduced from any other proposition or assumption. This principle is submitted by Aristotle more than two thousand years ago.
In brief, the first principal thinking said that we will learn more if we understand the basic concepts from any subject.
Thinking by Analogy
The opposite of "First Principal Thinking" is "thinking by Analogy". This is the most common thinking that a company usually has. In brief is like taking something that we already know, and making something better from it. This way is a good path when we want to add value to an existing product and services.
A sample case of Thinking by analogy might be we want to have a hotel business in our city, then we take a reference from success hotel in another city. Then we start the hotel business with several improvements, but still keep the reference from that original hotel.
First Principal Thinking vs Thinking by Analogy
How to differentiate between First Principal Thinking vs Thinking by Analogy? Let's say we have a chef and kitchen assistant. The chef is the pioneer, the person who made the recipe. A kitchen assistant is a person who follows the recipe made by the chef, they sometimes also modified parts based on a customer's order, to make the food look and taste better.
However, how the kitchen assistant who is cooking still depends on the recipe created by the chef. If the recipe is gone, they will be confused about how food should be made. It's different with the chef who understands the basic needs of the food ingredients rather than a recipe. Chef still can produce the food without the recipe itself.
In conclusion, the chef is the person who does the first principal thinking since he knows the principle of food and ingredient. While a kitchen assistant is a person who thinks by analogy, since he thinks that food must be created based on the recipe only.
The person who thinks by analogy will be confused if their reference for success formula is failed. Even though the formula is a success, it will not have a big difference from another competitor.
In an interview with Kevin Rose, Elon Musk demonstrates how to do the first principle of thinking when creating an electric car. One of an electric car spare parts is a battery and in general assumption, the cost of the battery is very expensive.
As a first principal thinker, he did not stop on the battery price, he thought more deeply about why the battery is expensive? What battery is made for? How can we create it by themselves?
From these thinkings, it helped Tesla create their battery factory, which is way cheaper than the market price.
Elon didn't stop on that, he then continued into more deep questions.
- What's the battery? We know it is a tool for storing power / electricity.
- Is there another element in this world that can store electricity?
From the questions, Tesla currently has the most innovative battery for their electric car.
Back to the hotel case, as a first principle thinker, we should question, why a hotel business is so expensive? What is the most expensive cost of a hotel? What is the customer actually searching for? Is it a hotel, accommodation, service, or good location? From the questions, Air bnb was able to establish themselves as one of the biggest hotel industries without even building, or owning any properties (hotels/buildings).
Amazon with their Amazon Web Services (AWS) first submitted the pay-as-you-go system as a solution to build an application system company that doesn't require you to invest in a million-dollar infrastructure.
Also, Uber is a huge transport industry provider without having a car, driver, or pool transport.
From those stories and experiences, we should now start to think about our daily problems such as education. What makes education expensive? What is education?
Also about the retail industry, what makes retail expensive? What are the most expensive parts? What is retail?
How business started to adapt the innovation:
Most companies try to adapt innovation in two ways. They just innovate flow along the way or they do deep detail planning before they start.
According to Gina O'Conner, a Professor from Professor of Innovation Management at Institute Universitaire de France, both ways were not effective to make successful innovation happen.
After 25 years of research in 40 different companies, she says four elements can accelerate innovation in a company. Those four elements are: Commitment, System, People, and Projects
According to Professor Ginna, innovation breakthrough will happen if the company defines innovation as a formal essential business just like another division such as marketing or customer service.
The mandate of innovation should come from the top person in the company, who should define the importance of innovation breakthrough and clear the path for such innovation. There also needs to be difference with incremental innovation that is already running in the company.
This system cannot be completed instantly or in one go. The basics of the system that we need to have:
- Portfolio process from various opportunities that are found in an ordinary company program.
- Procedure to help the innovation team navigate while facing many uncertainties occurred.
- Performance index from the innovation.
- Report process from innovation team leader that gives mandate in the company.
It is important to have a dedicated person in the innovation team from the beginning. A dedicated team should have a high ownership for the urgency of innovation and push the innovation process forwards.
Every team member must have a different specific role, and they should have a good relationship in the company so that they can get support or resources from other organisations as well. This team should have strong organisational skills to assist find, incubate and accelerate innovation.
It must be noted that time for this team for this innovation should ideally be exclusive to do the innovation only. If this innovation team's task is mixed with other tasks given by the organisation, the parts for innovation time are almost always beaten by another never-ending organisation's function which, will result in the innovation being difficult or slow to move forwards.
The project will make the innovation become something real, it's the part that moves this innovation forwards. The project is also important for training, drilling the innovations, incubations, acceleration, and creating an innovation portfolio in the future.
A project with the correct implementation of the first 3 elements (commitment, system, and people) should generate wins and will build support from the entire company.
Those 4 elements will help a company to make an innovation breakthrough to stepping into an unpredictable world.