This document discusses innovation in the age of disruption and black swan events. It argues that while foresight and scenario planning are important for guiding long-term strategy, organizations must also be agile and able to change pathways in response to new events. The definition of innovation is broadened to include value creation through new products, services, and business models, not just R&D and technology. Examples are provided of companies that exemplify different types of innovation, from startups to large firms pursuing incremental and disruptive innovation.

1. December 2011
industry insights
Innovating Innovation:
Innovation in the age of
disruption and Black swans
23

2. December 2011
industry insights
In an era where change occurs in the blink of an eye, between using the foresight information to resulting in a positive impact to the economy,
investments into foresight and scenarios planning drive long term strategy yet be sensitive to the business, public service delivery system, social
are important to guide organizations develop emergence and impact of disruptive innovations well-being or the environment”.
strategies for future investments. However equally and black swans at the same time. Organizations
important are how these strategies are translated need to be dexterous enough to deviate from With so many de nitions oating around, it is
into action and the willingness of the organization the charted course and redirect resources to understandable that there is much confusion
to change pathways with the emergence of new more valuable projects. Secondly, organizations on what is innovation exactly. e OECD has
events or circumstances. should explore more e ective strategies towards also de ned innovation in four areas - product
creating innovations; this may range from strategic innovation, process innovation (a markedly
In late July 2011, oodwaters drowned a third of collaborations with external parties or tapping improved production or delivery method),
ailand causing billions of dollars in damage, on channels for open innovation. Organizations marketing innovation (involves a new marketing
pu ing 14,000 factories underwater and nearly would doubly bene t from such activities from a method involving signi cant changes in product
700,000 people temporarily out of work. Toyota, nancial and risk management perspective. On design or packaging, product placement, promotion
Honda and Western Digital are only a few of the the upside, organizations need to explore how the or pricing) and organizational innovation (involves
giants that had to suspend their operations in disruptive situations may be used to their own introducing a new organizational method in the
ailand. How would any foresight or scenarios advantage. In short we need to look at how we de ne rm’s business practices, workplace organization
planning session have predicted this disaster? If innovation and more importantly, how we approach or external relations). According to Figure B,
this were your predicament, how agile is your innovation. Malaysian companies are already practicing these
organization in exploring new strategies and how various types of innovation; however the majority
well would you be able to implement them? focused much more on incremental innovation with
a sma ering few that practiced radical innovation.
In the 2010 Malaysian Innovation Climate Survey
Report, which collated views from employees in In the era of disruptive innovation and black swans,
organizations, many Malaysians viewed innovation organizations need to broaden the de nition of
Clayton Christensen in his book e Innovator’s as strongly related to creativity, R&D and technology, innovation and not limit themselves to R&D, patents
Dilemma made famous the concept of disruptive and least associated it with risk and processes as and technology, but to focus more on value creation.
innovation, where the introduction of a new shown in Figure A. In fact many current incentives We believe that innovation should be de ned as “the
24 technology or business model disrupts the and innovation initiatives are strongly tied to R&D, introduction of new products, services, processes,
traditional market practices. is is the space where science and technology and less on processes, technologies, business models or management
CDs replaced the 3-inch oppy disk drives but are services and business models. practices that have created signi cant value
now on the endangered list themselves due to the
emergence of mega-thumb drives/ ash drives. Figure

3. A Elements

4. innovation

5. is

6. most

7. associated

8. with
Digital photography has also practically caused the 0% 20% 40% 60% 80%
extinction of the 35mm lm rolls. In more recent
75%
times, Skype disrupted revenues of many traditional
telecommunication companies as consumers were 45%
able to communicate globally at a fraction of the 40%
cost.
36%
Black swans, also cause disruption and the causative 19%
factor may be an environmental, economic, political, 18%
societal or a technological event. ‘Black Swan’ was
15%
a term made popular by Nassim Nicholas Taleb, a
nance professor and former Wall Street trader, and 15%
it referred to an event or occurrence that deviates 15%
beyond what is normally expected of a situation
11%
or one that would be extremely di cult to predict
and commonly has an extreme impact. Situations 10%
like the oods in ailand and its ensuing e ect on
the automotive, electronics and food supply chain When we look at de nitions, the US Advisory ( nancial/non- nancial) for an organization.” At
in Asia; the earthquake in Japan and its impact on Commi ee on Measuring Innovation in the the end of it all, organizations need to innovate the
the Nuclear Power Generation industry; even the Twenty-First Century Economy describes way that they approach innovation.
political unrests and protest in the Middle East and innovation as “the design, invention, development
North Africa with its impact on oil prices would and/or implementation of new or altered products,
encompass black swans. organizational structures, or business models for
the purpose of creating new value for customers Our analysis reveals three distinct approaches
e combination of these events and circumstances and nancial returns for the rm.” Malaysia’s own towards innovation; 1.0 which is predominantly
has enormous implications on organizations. Not Innovation Bill 2010 de nes innovation as “any idea driven by the lone inventor or technopreneur,
to undermine the role that foresight and scenarios or knowledge in whatever form which brings about producing products with very limited resources.
planning play, organizations, we feel must balance changes in the form of product, service or process, Innovation 2.0 on the other hand has a large budget,

9. December 2011
industry insights
is driven frequently by an R&D team over a long period of time resulting in patents or IP production.
en there is Innovation 3.0, which is strongly market driven while li ered with constraints. Innovation

10. Types

11. of

12. Innovation

13. practiced

14. by

15. companies

16. in

17. Malaysia,

18. based

19. on

20. the

21. company’s

22. size

23.
Figure

24. B (number

25. of

26. employees.)

27.
75% 100%
50% Product
(Physical)
25% mines, this was a revolution. While prosthesis
0% Services
for a similar level of amputation can cost several
>1000 Design thousand dollars in the U.S., the Jaipur Foot costs
only US$28. Currently the technology is adopted
Internal
Process within many land-mine li ered countries. In
(Operational
200-10000 Innovation) Cambodia, part of the foot’s rubber components
Sales & is scavenged from truck tires. In Afghanistan,
Marketing
cra smen hammer the foot together out of spent
<200 Business artillery shells.
Model
(USA) - Apple, which started life as Apple
Business

28.
Overall Sales

29. &

30. Model Computer, Inc. has evolved to become the most
Process Marketing
Design valuable technology company in the world. Apple
Service
Product was awarded a mere 563 patents in 2010 while
IBM and Microso were awarded 5896 and 3094
patents, respectively, in the same year ( e Irish
3.0 is frequently inspired by organizational leaders developer, which was initiated in 2003 by three Times, January 12, 2011).
who create a strong innovation culture and mindset students from Helsinki University of Technology
within the organization. e Innovation 3.0 who went on to create Angry Birds in 2009. Angry (Malaysia) - A limited service chain
approach also regularly utilizes the web and open Birds is a puzzle video game which as of March of hotels, modeled a er the low cost carrier, 25
innovation. 2011, had been downloaded over 100 million times. AirAsia. It limits many traditional hospitality
is game has been called the largest mobile app services, leases hotel space to retailers and rents
Numerous countries have many incentives success the world has seen so far. Resulting from this out advertising space within the hotel (in the
surrounding Innovation 1.0 (grants for start- success, in March 2011 Rovio raised US$42 million hallway, in the rooms, at room keys, toilets etc.).
ups and technoprenuers) and Innovation 2.0 in Venture Capital Funding. Tune Hotel adopts a well-known business model;
(incentives which are targeted towards lab based low cost, no frills concept to a new industry, while
R&D as opposed to ethnography, market study etc). Microso and IBM are excellent examples of leveraging o existing technology.
Large innovative companies however are practicing Innovation 2.0. Since 2002, IBM has spent almost
or need to be performing Innovation 3.0. US$50 billion in R&D and has been the top e common thread among all these examples
producer of patents in the US patent list for 18 is that they are not driven by high technology.
e US, with its strong start-up culture, venture consecutive years! In 2010 alone, IBM was awarded Grameen Bank and the Jaipur Foot were born
capital and angel investor funding and strong 5,896 US patents, the rst time any company has from a necessity, utilizing minimal technology but
IPO market, is a brilliant place for Innovation 1.0 been awarded over 5,000 patents in a single year. resulting in an enormous value creation. Apple,
to ourish. In some cases, the initial investment though technology-based, is far from the leader in
needed is not enormous. Another Innovation 1.0 number of IPs and patents, but utilizes the few that
example is Rovio Mobile, a Finnish computer game they have very well and incorporates a magni cent
combination of design and marketing innovation
into their product and culture.
(Bangladesh) - a micro nance
organization which makes small loans to the In conclusion, in the era of Disruptive Innovation
impoverished without collateral. e idea was and Black Swans, organizations need to be nimble
conceived from the realization that the poor had when it comes to innovation. ey need to go
skills that were underutilized. is group-based beyond investing in traditional R&D or focusing
credit approach uses peer-pressure to ensure on generating patents. Organizations need to look
borrowers comply with repayment schemes. is at acquiring patents or IPs or license these from the
concept, a brainchild of Professor Muhammad smaller setups. Focus more on value creation. Since
Yunus has been duplicated around the world, speed is critical, organizations also needs to tap on
earning him a Nobel Peace Prize in 2006. alternative sources of ideas and leverage on existing
technology to develop fresh angles for business.
(India) - is was rst conceived due e time has come where innovation cannot be
to the unavailability of a ordable foot prosthesis. approached in the traditional manner anymore; we
For the millions who lost their leg due to land all have to innovate the way we innovate!