The Innovation Mode: How to Transform Your Organization into an Innovation Powerhouse

By George Krasadakis

This book presents unique insights and advice on defining and managing the innovation transformation journey. Using novel ideas, examples and best practices, it empowers management executives at all levels to drive cultural, technological and organizational changes toward innovation.

Covering modern innovation techniques, tools, programs and strategies, it focuses on the role of the latest technologies (e.g., artificial intelligence to discover, handle and manage ideas), methodologies (including Agile Engineering and Rapid Prototyping) and combinations of these (like hackathons or gamification). At the same time, it highlights the importance of culture and provides suggestions on how to build it.

In the era of AI and the unprecedented pace of technology evolution, companies need to become truly innovative in order to survive. The transformation toward an innovation-led company is difficult – it requires a strong leadership and culture, advanced technologies and well-designed programs. The book is based on the author’s long-term experience and novel ideas, and reflects two decades of startup, consulting and corporate leadership experience. It is intended for business, technology, and innovation leaders.

      

• Language: English
• Publisher: Springer
• Release date: Jul 29, 2020
• ISBN: 9783030451394

Book preview

Part IThe Fundamentals of Innovation

© The Author(s) 2020

G. KrasadakisThe Innovation Modehttps://doi.org/10.1007/978-3-030-45139-4_1

1. Innovation (Re) Defined

George Krasadakis¹  

(1)

Dublin, Ireland

George Krasadakis

Email: [e-mail]

Innovation means different things to different people. In fact, it is considered to be one of the most overused business terms of our times.¹ There are hundreds of definitions available, coming from various angles and different disciplines. Some refer to the process; others focus on the outcome.

Clarity on the terminology is essential for the success of the innovation transformation program: it fosters a shared understanding of the underlying principles and accelerates the adoption of related methods and practices. Using the right innovation terms, in the context of the company, helps to better shape and communicate the innovation agenda; it enables people to obtain a clear view of where the organization stands in terms of innovation, where it should be, and how it can get there. Moreover, consistent use of such terms is crucial for identifying, measuring, and reporting innovation activities, outputs, and performance, which, in turn, allows effective orchestration of innovation. Thus, organizations must clearly state and communicate what innovation is and how being genuinely innovative looks like in their environment; they must not only understand but also contextualize innovation—adapt those generic definitions to reflect their own principles, priorities, and strategy.

To illustrate the need for solid definitions of innovation, consider a hypothetical company that is relatively innovative—it runs an ambitious innovation program, and has an engaged community of innovators. There is a flow of ideas—originating from within—which are managed through a diverse innovation portfolio. The company evaluates prototypes, tests ideas, and occasionally builds minimum viable products or new features for existing solutions. Even though this hypothetical corporation looks innovative—there are ideas, innovation portfolios, assessment processes—it is not easy to tell how innovative it is, or how the level of innovation evolves. As innovation activities blend with typical business routines, they cannot be easily tracked or identified. Apart from specific threads that are tagged or named as innovation, identifying innovation as it happens is not an easy task.

This is due to the various forms of innovation—it may be hidden in certain features of a product, or it may appear as a novel business model on top of an otherwise conventional service. Ambitious and hi-tech projects may be addressing known needs with standard solutions and thus not literally novel. Others may be truly novel, but also risky, with questionable feasibility and market fit. At the same time, specific ideas may have potential as inventions and intellectual property assets, thus of strategic value for the firm. Spotting innovation as it happens becomes more complicated, if we consider that even the most innovative, promising, and well-tested projects may still fail—whether in development or post-market launch. Having precise definitions in place helps to clarify if such scenarios should be measured as innovation and how. In the following sections, we discuss existing definitions, their properties, and, where necessary, we introduce new ones for the purposes of the innovation mode.

1.1 Novelty

Novelty is essential for innovation. It is not easy to find a definition of innovation without terms such as new or novel. The actual verb innovate is defined as "Make changes in something established, especially by introducing new methods, ideas, or products."²

The notion of novelty is straightforward—it is defined as the "state or quality of being novel, new, or unique; newness."³ In practice, though, examining if a given concept is new is not a simple task: what appears to be a novel and disruptive idea in the mind of an ambitious innovator may prove to be known to the team or the organization. Similarly, an idea that is considered groundbreaking in the microcosm of a corporation may be already implemented elsewhere in the market. Novelty depends on the point of view of the observer, and any attempt to estimate it prerequisites a good awareness of the state of the art. Even strict processes run by professionals do not always conclude on the novelty of a concept in a definitive manner.

At the macroeconomic level, the notion of novelty is essential since it is a condition for identifying innovations and measuring how companies, markets, and industries innovate. It is also important for the patent ecosystem since novelty is one of the criteria defining the patentability of an invention. The newness of a solution is estimated through analysis against the knowledge that is already available to the world. This is a lengthy process known as the prior art search, which is usually conducted by patent analysts or patent attorneys.

At the microeconomic level, within the corporation, novelty may be seen differently depending on the context. For example, one company may only measure as innovation opportunities those novel-to-the-world ideas, while another may also count those that are known to the market but applied for the first time in the specific industry. Variations and adaptations of these definitions are common and accepted—to better reflect the nature of the organization. It is crucial, though, to ensure that these adapted views on novelty are communicated with clarity and used consistently: everyone in the organization should understand how novelty is defined, measured, and used.

When it comes to a specific concept, novelty usually refers to the core idea, individual features, or the enabling technologies. However, it may come into play in less coherent forms, for example, in the way a solution combines existing knowledge to solve a challenging problem in a more effective manner, or through a non-obvious adaptation of a known concept from another industry or technological domain. Novelty may appear in the way the product is introduced to the market or even as a new monetization model. A non-novel concept may be executed or offered in a unique way that leads to massive impact—for example, through a new servicing model or other forms of business model innovation. Hence, when assessing the potential of a concept, novelty should not be taken literally or used as the sole criterion for prioritization or other decisions: even if an idea is not literally novel, it may still qualify as an innovation opportunity. Nevertheless, tracking and measuring novelty at the idea level can be beneficial for corporations, in the following two directions.

First, it helps in the early discovery of intellectual property opportunities that could otherwise be missed. This can speed up the lengthy patent process and protect referenced inventions before they are exposed to the market.

Second, consistent estimation of the level of novelty of ideas sets the basis for measuring innovation, improving prioritization, and balancing the innovation portfolio. It is an insightful metric enabling a deep understanding of the overall innovation activity and output of the organization. While knowing the novelty, of a specific idea, may not be actionable beyond triggering the IP protection process, the ability to obtain the distribution of a portfolio of ideas in terms of their novelty can be very insightful from a strategic point of view.

In an ideal scenario, the estimation of novelty should be encapsulated into the idea assessment process during which the evaluators apply their knowledge regarding the state of the art and estimate the level of novelty of each idea. These are typically product and domain experts who follow closely the rapidly moving technology landscape and use the latest signals from the market and global technology hubs to make sound judgments on the novelty and feasibility of new idea submissions. This way, new ideas, solutions, and proposals get tagged with a quick estimation of the degree of novelty—which may be expressed in an ordinal scale like new to the world, new to the industry, new to the company, or new to the product.

In general, the definition and scope of novelty should be adjusted to match the nature of the organization. Beyond the scenario of intellectual property rights, novelty should have primarily an informational role.

1.2 Invention

An invention is an idea, a solution to a problem that is novel and proven workable—without necessarily being implemented. It may be just a detailed, validated technical description of a solution, a new, non-obvious way to achieve a goal. The key requirement is to be novel, something that has never been made before.⁴

Inventions usually come in the form of a device or a method that solves a specific problem or performs a task in a new and significantly improved way. An invention may be enhancing a known solution by adding new elements, or it may be entirely new. Inventions frequently refer to purely technological or scientific subjects, but they also happen in other expressions of human activity—such as in social and cultural spheres. Thus, they may happen independently of production and commercialization plans—the inventor may be solving a problem, without having specific commercial goals, or a strategy to exploit it and monetize it.

1.3 Innovation as an Outcome

Innovation is more than invention : most of the definitions of innovation include a condition on execution or implementation—they consider as innovation a realized idea launched to the market and exposed to real users. For instance, according to the following definition (OECD 2016):

An innovation is the implementation of a new or significantly changed product or process. A product is a good or a service. Process includes production or delivery, organization, or marketing processes.

According to the same source:

A common feature of an innovation is that it must have been implemented. A new or improved product is implemented when it is introduced on the market. New processes, marketing methods or organizational methods are implemented when they are brought into actual use in the firm’s operations.

Following this definition, the product or service must be implemented and available to potential users in order to qualify as innovation. Other popular definitions include criteria such as success, wide adoption in the market, and proven impact. For example, according to the UK Department of Trade and Industry (DTI 2007), innovation is the successful exploitation of new ideas.

These definitions work well when approaching innovation from a macro-perspective, for example, when measuring the level of innovation in a market, industry, or geography; they consider primarily the end result, the outcome of a long process of development and commercialization—they look for novelty that has been implemented and delivered to users, with proven adoption in the market. Such macro-views bound innovation to impact or success.

At the micro-level, when looking from within the corporation, a more flexible definition is needed—one that can be used to track innovation as it happens. In a typical business environment, there are multiple parallel projects and initiatives, with various levels of novelty and business potential. Given that the journey from an idea to market is long, the company should be able to monitor, quantify, and analyze the innovation potential of each project. It should be able to spot and measure innovation—by evaluating the entire opportunity pipeline and the innovation portfolio—based on the novelty, feasibility, and expected impact of the contained projects. In this scenario, when zooming into the development process of a given organization, the class of definitions presented above will not work in identifying and measuring innovation—as they prerequisite implementation and impact.

Consider, for example, a product concept which is at a mature state, has verified technical novelty, and has successfully passed rigorous user testing, indicating that—in all probability—it solves a major problem for a critical mass of users, in a better and economically viable way. According to the classic definitions, it cannot be measured as an innovation yet—as it has not reached the market and it is not fully implemented—it does not meet the criteria of adoption and exploitation. Even when the product is built, the condition of implementation, as used in the definition above, is not satisfied until the product is released to the market. However, in a corporate context, this is an instance of genuinely innovative activity and intermediate innovation output. In this example, the product should be seen as a validated innovation opportunity that, if built and launched properly, may reach the level of adoption to qualify as "classic" innovation. But even if this product finally fails, this should still be reported—within the corporation—as an innovation initiative that had partial-only success—a concept that converted up to a specific stage in the innovation funnel.

Hence, to assess the level of innovation of an organization from within, a more flexible definition is needed—one that can flag the innovation potential of less-mature solutions, before they reach the market. The definition should be independent of the result—as success in the market depends on various factors, some of which may not be directly related to the company’s ability to innovate or ability to execute.

1.4 Innovation as an Opportunity

Typically, innovative organizations maintain portfolios consisting of multiple promising concepts—which may be novel and high potential but not yet built or released in the market. Some of these concepts may be tactical, while others may be part of ambitious programs tackling big problems or unarticulated user needs; they may be in a prototyping phase, waiting for a decision or queued up for implementation, and may or may not reach the market. In the context of the innovation mode , we call these novel and high-potential concepts innovation opportunities, defined as:

A feasible, well-structured solution to a defined problem, with some novel aspects that are validated as highly probable value-drivers for a critical mass of users.

This definition is more flexible in terms of maturity, novelty, and success since it allows a less-mature solution to also qualify as an innovation within the organization. The term solution is used with its broader meaning—it refers to a defined, validated proposition addressing a well-articulated problem. The latter should come as a structured problem presentation, ideally articulated as a problem statement⁵—which also helps in setting high-level success criteria. To qualify as an innovation opportunity , the solution must have the potential for a significant improvement toward the ideal situation described in the problem statement. It may be pointing to a new product, a feature, a process, or a service, and it may take various forms, for example, a physical or digital product or an online experience.

According to this definition, to be measured as innovation, the solution must also be feasible, meaning that it can be developed and offered in a way that creates value for both its users and the corporation. Additionally, the solution needs to have at least some novel aspects that, based on validation, are expected to be significant drivers of value. It does not have to be an entirely new concept: a proposal to upgrade a known and conventional product by adding a set of novel, high-potential features may also be considered as an innovation opportunity—provided that these novel features are identified as the primary value multipliers—the source of benefit for a critical mass of users . The definition does not assume success: the term highly probable underlines that there is still a level of uncertainty involved and denotes that a precise process has been applied in validating the solution. Failure is always a possible outcome, whether the solution is in development or when exposed to the market. In an expanded form, the above definition would read like:

An innovation opportunity is a somehow novel solution that is well-defined and estimated to be technically feasible and economically viable. It addresses a defined problem by leveraging novel aspects that have been validated as significant value-drivers for the end-users and stakeholders.

These relaxed definitions enable different views of innovation—from within the corporation. Ideas, concepts, and proposed solutions are validated early enough in the process—they are scored by a team of experts against the core components of innovation—as contextualized and weighted by the corporation. This consistent, internal view of innovation allows the leadership to better understand how the company is innovating and, as a result, to better orchestrate the innovation process.

1.5 Innovation as a Function of the Organization

The innovation function, in a corporate environment, is what enables the organization to innovate—to create innovation opportunities and, ultimately, innovation in the classic sense. It is the general capability and readiness to react fast and wisely on signals and emerging patterns from the global economic environment. We define the innovation function in the following:

The innovation function is an always-on system of procedural, cultural and technical activities, innovation enablers, and resources, aiming to maximize the likelihood of producing successful innovation opportunities.

The innovation function may be thought of as a system that receives signals—such as unmet customer needs, market trends—and triggers the right innovation processes, which allow people to react by generating ideas and proposals. Specialized innovation teams, also part of the system, process ideas, spot opportunities, and eventually drive specific ones to market. Beyond innovation opportunities, the system outputs knowledge and innovation assets.

The enablers mentioned in the definition refer to individual capabilities, systems, or services that support and accelerate the innovation processes. For example, the ability to capture, manage, and evaluate ideas and the framework for rapid prototyping. Enablers also refer to a range of services that support practical aspects of innovation, such as the setup and facilitation of innovation events, and the provisioning of resources. They may take the form of special teams that operate innovation systems, handle the logistics for ad hoc or recurring events, create branded innovation content, or provide innovation support, training, and mentorship.

The resources refer to anything that is essential in practical innovation initiatives—from raw materials, equipment, tools, and hi-tech devices to communication systems and physical space. This also implies an effective procurement process to cover the special requirements of innovation projects, fast. The innovation function of an organization requires a framework providing the right capabilities, process, and resources—this is covered in Chap. 4.

1.6 The Innovative Organization

The obvious way to define the innovative organization is by referencing its ability to deliver innovation to the market. However, this approach depends on the measurable impact in the market and the adoption of innovation. As described previously, given all the types and flavors of innovation and the different views on novelty, the criterion of realized innovation is rather limiting.

To illustrate that, consider a company that operates for years, following all the innovation principles and practices—it has achieved a great culture, and it has all the enablers in place—but with no successful market-facing innovation results yet. How innovative is this company? Similarly, a company may be innovating following its own style and depth—for example, it may be adopting the latest inventions and novel technologies from open innovation networks and embedding them in its own products, services, or production methods. There are organizations that are not innovating in a systematic way, but still, they occasionally manage to create innovation opportunities and drive them to the market. In all these cases, companies are innovative in some way, and to a certain extent. The key question is what constitutes an innovative organization? The following proposes a generic definition that also takes into consideration the intermediate innovation artifacts of the company:

An organization is innovative when it consistently demonstrates an increased ability to generate validated innovation opportunities in alignment with its purpose.

According to this definition, an organization may be considered innovative, even if innovation is in progress—with no realized market impact or adoption yet. By referencing the interim outputs of the innovation process—less-mature artifacts in the form of innovation opportunities—this definition allows companies that innovate in different ways—at a smaller scale, at the process level, etc. to also qualify as innovative. It enables companies to quantify how innovative they are, by identifying and measuring the volume of innovation opportunities generated over time compared to regular projects and innovation investments.

In addition, companies may perform regular self-assessment of their innovativeness, using a suitable questionnaire that measures aspects of culture, technology, process readiness, and their perceived ability to innovate. These individual metrics are then fed into a scorecard that weighs the partial inputs according to their importance for the organization, leading to a single level of innovativeness.

1.7 Classification of Innovation

Classifying innovation is not always straightforward since it depends on the definition, the context, and the point of view. However, it is crucial for leaders to understand the basic typology, as it helps to define the innovation strategy and articulate the innovation agenda. Also, contextualizing the different types of innovation—understanding and reflecting how they serve the purpose of the company—helps to better set the focus and balance divergent innovation strategies through portfolios of initiatives.

Classification of innovation can be done based on its target—what the innovation aims to improve or its intensity—how smooth and continuous innovation is. In many cases, it is classified based on its openness or the maturity of the efforts or the state of the target market. There is a plethora of variations and combinations of typologies, frequently leading to confusion and limited understanding of the underlying concepts. The following discusses a structured approach in classifying innovation.

1.7.1 Based on the Target: The Object of Innovation

Innovation introduces new ways to improve something. Thus, it can be classified based on the form of its primary target—the nature of the object to be improved. According to the OECD,⁶ there are four main types of innovation, namely product, process, marketing, and organizational—as described in the following.

Product Innovation

In this type, the innovation efforts result in a new product—good or service—or the improvement of an existing one by introducing significant and novel enhancements. A product in this context can be anything that may be offered to the market to satisfy a specific customer need—it can be a physical object, a digital product such as an application or a web experience.

When targeting new products, this type of innovation has typically a long lifecycle since there are multiple stages involved in the process—from conceptualization to prototyping, experimentation, etc. and it may require significant investments in production lines, development teams, research activities, and marketing plans.

Marketing Innovation

This type of innovation refers to the ways a product is being offered to the market. According to the OECD,⁷ "A marketing innovation is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. At this level, innovation may come as novel ways of communicating and persuading potential users to engage with products or services. For example, it could take the form of a new interactive campaign, a cross-channel promotion experience or novel digital means of exploring the features of a product. The purpose of marketing innovation is to present the company’s commercial offerings in a better way and thus assist in opening up new markets, better positioning products and services, and driving sales and growth. Based on the same definition, to be considered as marketing innovation, such an activity must be also new to the company—never applied before; it must be part of a new marketing concept or strategy that represents a significant departure from the firm’s existing marketing methods." Marketing innovation usually requires smaller investments and effort. The implementation time is typically short, and it may or may not require technical implementation.

Organizational Innovation

This type of innovation targets the organization itself. In this sense, it is a self-improvement process introducing changes in the way the company operates, communicates, and decides. This type may refer to new means of organizing the work, executing and measuring progress, or new patterns of collaboration and contribution. It may come in the form of more efficient systems, practices, or methods. For example, it could be a new process for sharing information and gathering feedback from people in the organization, or a connected building diffusing knowledge and information on plans, events, and the innovation agenda of the organization via connected screens and interactive, personalized experiences.

Process Innovation

Innovation at the process level takes the form of improvements of methods, techniques, and systems—it refers to "new or significantly improved production or delivery methods for the provisioning of services and goods."⁸ Any new and non-obvious process or step that improves outputs by better handling the inputs can be considered process innovation. The improvements need to be novel, at least internally, within the boundaries of the organization.

Typically, such innovations impact the design and production methods, the distribution or delivery of products, the supply chain operations, and management of stock and organizational resources. For example, a company may introduce new operational procedures for a production plant or new systems simplifying the assembly line in order to improve its throughput, raise the levels of quality, or reduce costs. Normally, this type of innovation is not directly seen by customers—it helps in delivering better products and experiences overall, but it is not necessarily visible in instances of the product. Process innovation often comes as expensive, sophisticated technological solutions combining software, hardware, or machinery. In certain cases, though, it can be relatively inexpensive, for example, a new, more efficient way to authenticate employees and grant them access to a smart building by using existing equipment and already available data.

The rise of machine learning and IoT introduces a massive opportunity for innovation of this type as the available data and algorithms allow radically new ways in designing processes. For instance, an industrial production line may be optimized by enhancing its telemetry and introducing real-time data processing—allowing production managers to make optimal choices. Beyond optimization, the production line may be altered and enhanced by incorporating cognitive abilities, for example, by adding computer vision algorithms that check the attributes of the products being produced. In this hypothetical scenario, the production line becomes, in a sense, self-aware of its own performance: through real-time insights from a computer vision algorithm, it can detect deviations from normality—in terms of quality of the in-process products, and act accordingly—for example, flag a problematic product, re-route it for a fix, or notify the right team to intervene. In the same example, a new process may introduce the notion of self-check; that is, the production system automatically compares current performance metrics against its own history and detects or predicts forthcoming needs for maintenance or triggers troubleshooting for issues before they severely impact the process.

Business Model Innovation

Simply put, a business model describes the logic that an organization uses to make profits or achieve success; it provides a holistic view by summarizing the end-to-end mechanism that creates and distributes value to customers. A business model comprises all the pieces that allow the company to pursue an opportunity, a specific line of service, or its overall purpose. More specifically, it references the products or other offerings, the value proposition, along with the involved cost structures, the pricing, and monetization models; it defines how partner networks and distribution channels play a role in the process.

Introducing new logic to any of these components or the whole model constitutes business model innovation. Usually, this type of innovation requires no new product or technology—it is defined on top of existing products and often a customer base.

1.7.2 Based on the Pace, Intensity, or Continuity

Radical Innovation

This form of innovation brings a major change in something established—usually as a breakthrough idea or technology. In some cases, it replaces existing solutions or technologies entirely. Typically, it is the result of long-term, expensive, and high-risk investments at the technical and scientific layers. In many cases, it may also trigger marketing and business model innovations. Radical innovation is what typically attracts media attention—it is what consumers and the market perceive as innovation.

Incremental Innovation

In this form, innovation happens at a smaller scale and, frequently, probably on top of current technologies or products. It can be thought of as a continuous process of improving an existing offering—either by releasing enhanced versions of known features or by adding new ones. It is more conservative, less risky, but also less promising in terms of impact. Although this does not usually drive rapid results, it increases the likelihood that the product remains competitive. Unless the competition is faster or manages to successfully release a radical innovation addressing the same needs and market segments, incremental innovation should be sufficient to maintain proven products and technologies at the state of the art. In a digital context, incremental innovation can be fully embedded in the product development process: in parallel to scheduled development work, a product team maintains a backlog of novel ideas which, given the fast iterations of the agile approach, can be prototyped and tested or even exposed as preview features to a small subset of the user base—all at fast pace. This way, the team gets insights about their expected performance, makes informed decisions about further development, and keeps improving the product with smaller, frequent doses of innovation.

Disruptive Innovation

Disruptive innovations, as Christensen describes, are not breakthrough technologies that improve existing products, but instead, innovations that make products and services more affordable and accessible, thus available to a larger population.⁹ The disruption happens when a product or service enters at the bottom of a market as an inexpensive and more accessible option and then moves fast in gaining market and eventually displacing established competitors."¹⁰ Disruptive innovations are usually driven not by established, successful companies but by outsiders such as startups. In this theory, market leaders do not respond to disruptive innovations when they first arise, because they are not profitable enough and because their development can take scarce resources away from sustaining innovations.

1.7.3 Based on the Style and Approach

Corporate innovation may also be characterized by its style—the approach taken by the organization, the level of openness, and how visible and accessible it is to people in the organization.

The Centralized Approach

Expensive innovation programs may take the form of specialized technology labs and research and development departments. This defines a centralized innovation model, according to which the agenda and outputs of innovation are controlled by a single entity, and the rest of the organization has limited participation—practically acting as first-level consumers of the inventions and knowledge produced by the labs.

The Decentralized Approach

Modern views on corporate innovation advocate for an open, decentralized model where artifacts, knowledge, and resources are available to all. In such a setup, innovation can originate from any team, and the knowledge produced is diffused across the organization. Of course, in specific industrial or scientific environments, the need for specialized laboratories or research facilities may still be the right approach—although it may coexist with higher-level innovation programs that connect them with the rest of the organization.

1.7.4 A Special Case: Open Innovation

In our interconnected reality, it is extremely difficult to think of a problem or a solution that has not been conceived elsewhere in the world. Big problems and challenges—as sources of ideas and stimulus for innovation—are uniformly distributed via our digital networks to billions of connected users: the world is innovating on the same agenda, in a synchronized way. Clusters of individuals and business entities across the globe are possibly solving variations of the same problem, independently from each other (and thus, from a macro-perspective, inefficiently). The old way is to protect and compete; the modern approach is to share and partner up. Open innovation allows economic entities to connect and selectively exchange knowledge, form partnerships, and speed up the innovation process in ways that create benefit for all.

Open innovation is a new paradigm on how companies utilize internal and external knowledge as part of their innovation process. It is formally defined as "a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization’s business model" (Chesbrough and Bogers 2014). It allows organizations to participate in a rapidly growing, world-scale system of knowledge and technology creation.

This broader view on innovation acknowledges the fact that it may be too difficult and expensive to innovate in isolation—without leveraging ideas and knowledge produced beyond the boundaries of the organization. In contrast to the mode of secrecy and protection of knowledge, open innovation proposes an extended knowledge ecosystem consisting of companies, user communities, research centers, and hubs. Its members both discover and share ideas, knowledge, and inventions. In many cases, companies crowdsource problems—asking their partners, customers, or even the public domain for novel ways to tackle them—a process that may drive remarkable ideas and insights and other positive effects. Open innovation is not only for corporations—smaller entities, including startup companies, can join to contribute and benefit from this world-scale knowledge fabric. Public sector entities and non-profit organizations may also play a significant role.

Very often, companies have rich patent portfolios, with only a tiny fraction of them utilized. Or, they may be protecting trade secrets—that are no longer of significant commercial interest. In the open innovation scenario, these could become part of the outflow toward the ecosystem. For example, a company may consider sharing selected non-commercialized inventions that might be valuable for other members. On the other hand, the company may explore and eventually leverage ideas and knowledge produced by others—through patents acquisition, licensing, or commercial agreements.

Beyond the exchange of knowledge, companies need to open up in exploring new models of partnerships in the form of cocreation and exploitation of knowledge and inventions. Open Innovation 2.0¹¹ accelerates this change by introducing a new paradigm of collaboration, with the aim to drive structural changes far beyond the scope of what anyone organization or person could do alone.¹²

This knowledge exchange with the ecosystem needs a method and the right strategy that would enable the company to stay in sync and discover, evaluate, and possibly internalize third-party inventions, ideas, and resources. This strategy also defines how to give back to the innovation partners, by sharing selected pieces of knowledge—those internally developed ideas, research findings, inventions, or technologies that are not planned for commercialization. The connection with the ecosystem must be carefully designed to minimize the risk of losing competitive advantages by unintentionally disclosing aspects and ideas associated with confidential initiatives or protected knowledge.

1.7.5 Social Innovation

We may also differentiate innovation based on its ultimate goal. For example, in contrast to business innovation, which focuses on driving business success in terms of profits and market share, social innovation prioritizes impact and value at the societal level—it aims to introduce improvements in working models, education, access to health services, and community development. It may be driven by non-profits, activism, volunteers, or self-organizing communities.

1.7.6 Selecting the Right Type of Innovation

The right approach to innovation—the style, type, and pace—should be dictated by the overall strategy of the company: it is the long-term goals, growth plans, and the innovation agenda that point to the appropriate balance between innovation types and modes. The strategy can be translated into a roadmap that tackles named problems with different types of innovation, running in parallel, with varying lifecycles. For example, a company may be investing in radical innovation initiatives while accelerating its incremental innovation capacity to protect its market share and keep current product offerings competitive and profitable. Innovation portfolios allow companies to combine different styles and innovation objectives.

1.8 Innovation in the Era of AI

Digital transformation has already happened—for a big part of our world and is accelerating for the rest. The global digital population as of January 2020 is estimated to be 4.5 billion users,¹³ while the number of connected devices is expected to reach 29 billion by 2022¹⁴ and 75 billion by 2025.¹⁵ The entire world is getting connected, forming a massive network of human and artificial intelligence. People already have access to a world-scale digital fabric, an immense collection of resources as the building blocks for new solutions, services, and products. Humanity’s accumulated knowledge and ideas are available to people and machines through simple APIs and search engines. Resources such as software libraries and frameworks, machine learning models, data, and creative content can be used for free under certain terms such as the MIT license or Creative Commons.¹⁶

The process of innovation is becoming faster and more efficient. With a proper setup, a company can shorten and streamline the cycles from an idea to an informed decision. Technology empowers the end-to-end innovation process—from ideas to rapid prototyping, validation of concepts through digital channels, content discovery, and experimentation. For instance, a crazy idea regarding a connected physical product that can identify the current user via facial recognition and serve a personalized experience could be quickly tested by creating a digital model of the object and then materializing it through a 3D printer. The prototype would become functional by integrating a camera and inexpensive computer components that allow it to connect and consume third-party facial recognition services. This would provide a realistic experience that can be exposed to selected users for testing and feedback—all at a relatively low cost. Similarly, in the purely digital context of an online product, A/B testing a new idea that aims to improve an existing experience can give statistically significant results in no time. Leveraging feedback from a distributed group of experts who interact with a digital prototype can be done in a matter of minutes.

At the same time, this significant improvement in the general ability to innovate raises the expectations from users, customers, and shareholders: innovation is now expected to be present in products, experiences, and strategic plans, which creates additional pressure for companies to actually innovate.

1.8.1 How Digital Technology Accelerates Innovation

The impact of digital technologies, in terms of connectivity, access to information, and intelligent automation, creates tremendous opportunities for both incremental and radical innovations. Most importantly, it impacts the general ability to innovate—in at least the following ways.

Access to Technology: Reusability, Openness, Availability

Technology is becoming not only extremely powerful but also generally available. Technologies that once could only be found in expensive research labs are now open to the public. Advanced artificial intelligence models are offered as services, ready to be integrated into simple software applications—for instance, facial recognition or content understanding services. Any individual with basic software development skills and an Internet connection can leverage technologies which, until very recently, were seen as science fiction.

Reusability and openness empower innovation by increasing the bandwidth to tackle unsolved, challenging problems. For example, by reusing components, data, models, and knowledge, a development team can easily cover the known, conventional aspects of a concept. Therefore, it gains in terms of capacity and focus—the team can become creative on what matters the most: the new, unsolved parts. More specifically, when prototyping a product, developers can quickly plug in standardized components and services to inexpensively build the features that, although important for the overall experience, are generally known and solved. This way, development teams allocate resources on the features that truly need a novel approach.

With the rise of APIs as the means for standard communication interfaces, systems and products are now more open, exposing parts of their functionality, and thus contributing to the formation of a massive collection of building blocks. These make the path from an idea to prototype and a live service faster, more flexible, and smoother. For instance, a developer building a modern AI-powered mobile app can save time by integrating various third-party services that provide data, content, and perform