The ROK

In an innovation marketplace it can be wasteful and even harmful to follow common advice and well-established “best practices”. A June Harvard Business Review article entitled “The Innovation Value Chain” speaks to the pivotal need for organizations to look outside their walls, industry, and traditional knowledge reserves in order to out-perform competition. A section of the article is dedicated to addressing two different types of external networks - solution and discovery networks. This section concludes by stating that “whether managers are developing solution or discovery networks, the key metric for them to keep in mind is diversity, not number, of contacts”. Perhaps success in building innovation and knowledge management resources should not be gauged by the number, but by the diversity of ideas - not by the amount, but the range of knowledge and information.

But what does diversity mean in this context? It’s not necessarily cultural diversity, which is often initially thought of when hearing this term. Rather, in this context, diversity is the multitude of differing inputs, viewpoints and perspectives permitted to influence inventive outcomes. Like any subjective variable, diversity, though vital, is extremely difficult to measure and therefore often left out of the equation.

A potential measure for diversity may be “dynamism”, a word used by Edmund Phelps, the Nobel Prize winning economist, to mean “the fertility of an economy in coming up with innovative ideas that are technologically feasible and profitable”. Over the past year, Phelps has written a number of commentaries in The Wall Street Journal that explore dynamism within the dichotomy of two economic systems - the economic system found in the West and the economic system found in Western Continental Europe.

Though both are systems of ownership, the economic system in the West (including US, Canada, and the UK) is marked by great openness to the implementation of novel ideas from all directions. The economic system in Western Continental Europe (including Germany, France, and Italy), on the other hand, is marked by large social institutions, including employer confederations, unions, and monopolistic banks. These and other institutions are aimed at protecting the interests of local stakeholders, sheltering the procurement of ideas from external forces, by essentially wrapping markets in a conformist cocoon of high entry barriers.

Phelps has found a striking difference between the amounts of dynamism present in the two economic systems. According to Phelps, the free enterprise system of the West - bearing the diversity of experience among managers, consumers, and financers on the selection of which innovations to undertake - facilitates and stimulates dynamism. In contrast, the Continental system - supported by measures to protect ideas from differing viewpoints and fluid market conditions - impedes and discourages dynamism.

Phelps believes that it is the broader education and wider equality of opportunity that encourage the emergence of progressive implementations. The openness to implement new ideas from diverse sources is what ensures the equal opportunity Phelps refers to. Diversity, in this sense, is the foundation of innovation and implementation.

Because the Continental system aims to efficiently focus and insulate a nation’s inventive pursuits, it is often associated with economies with comparatively small populations and/or resources. One could argue that a lack of dynamism, in a general sense, has more to do with the population size (the number of minds) and amount of available resources than it does with diversity, which often accompanies larger populations. Therefore, size might be the appropriate metric for innovation.

In the article “Innovation and Growth: Size Matters“, Geoffrey West refers to a study he and his colleagues conducted that created an analogue between the laws governing organisms and the laws governing innovation. Like biological organisms, social organisms consume resources and rely on networks for the flow of information and materials.

In this study West and his team gathered data from a range of urban centers from around the world. The team measured characteristics including energy consumption, economic activity, infrastructure, intellectual innovation, and employment of “supercreative” people. Like the economy-of-scale relationships found in biological systems, these urban systems showed very similar scaling - a doubling in population requires less than a doubling in resources. To the team’s surprise, however, the study revealed that characteristics with no natural analogue - intellectual innovation and employment of creative people - had an exceptionally linear scaling - a doubling of population has a more than doubling effect on the amount of creative and economic output.

Yet, while this study seems to support population size as the determinant of innovation, one cannot overlook the fact that with the flattening of our world, the importance of a location’s scale has nearly disappeared. Small economies that once relied on the Continental economic system have found it no longer necessary to fly in the slipstream of the few large economies that do the majority of the innovating. In today’s knowledge-based economy, ideas no longer need to percolate up through companies’ R&D labs but rather can be offered from a researcher at home or a lone entrepreneur in Timbuktu. This is exemplified in solution-oriented networks like innocentive.com. Borders and distance no longer restrict the number of participating minds; small geographic populations are no longer hamstrung. We are all playing in the same sandbox.

Denmark, a small country with relatively few resources, is clearly unable to win the R&D game. Despite its size and resources, however, Denmark’s government has made innovation a top national priority. According to professor Eric von Hippel’s article “An Emerging Hotbed of User-Centered Innovation“, Denmark’s dedication is focused specifically on “user-centered” innovation. Its government supported “Danish User-Centered Innovation Lab”, which is hosted by the Copenhagen Business School and modeled after an approach pioneered at the Massachusetts Institute of Technology (MIT), exemplifies this commitment. The lab is charged with harnessing new innovation methods from educators and consumers that can be tested at partner companies such as Bang & Olufsen and Lego among others.

In contrast to producer-centered innovation, user-centered innovation places consumers, those who have many points of view and familiarities, at the helm of idea development. Rather than pushing innovation through traditional, homogeneous (internal) producer pathways, this new paradigm pulls innovation from the more diverse (external) pool of consumers. The shift from producer to user-centered innovation certainly increases the size of the Danish sandbox. More importantly, this paradigm leverages the diversity found among its customers, allowing the country to compete in the global economy. Denmark has set its sights on markets in the US and the EU, markets it traditionally would not be able to out-innovate.

As our world flattens locational attributes like size and distance become less and less of a competitive advantage. This is not to say, however, that proximity is not important. In fact, physical location may be more important than ever.

The adage that organizations should “think globally and act locally”, that is, adapting a global strategy to a particular location, has been turned on its head. As Yoko Ishikura wrote in his article “Act Globally, Think Locally“, companies must harvest knowledge from diverse locations and use it to shape global strategies. Diversity is the key here. If one can gain diversity through flat connections with people from all over the world, is physical location critical?

Because access to decentralized information only requires a computer and internet access, organizations need to incorporate good ideas quicker than ever as access advantages have been greatly marginalized. Incorporating ideas faster than the competition requires an efficiency advantage in the transfer of knowledge and ideas.

Unlike explicit knowledge, which can be neatly packaged and transmitted over long distances with high fidelity, tacit knowledge is much harder to codify, and therefore much more valuable. Tacit knowledge transfer often requires multiple face-to-face interactions; this type of knowledge is transmitted most effectively through anecdotes. Proximity allows for the efficient transfer of tacit knowledge, thus becoming an important advantage.

The proximity advantage, however, does not correlate with the concentration of the number of people in a location, but rather the concentration of diverse and informal social networks. When we think of the largest urban centers, Silicon Valley and Cambridge Massachusetts do not immediately come to mind; however, if we think of the most fertile seedbeds for innovation, these locations would be at the top of our list. The tangential and decentralized interaction in both of these locations is what encourages competition and cooperation - the result: an extraordinarily creative environment.

Google is a company that must evolve as fast as the Web, and thus far the company has been successful in doing so. Much of Google’s innovation success is attributed to its culture. Google, like the climate outside its door, is known to be radically decentralized; the company is comprised of small, self-managing teams that have been given the freedom to take a ”just try it” attitude. Its freewheeling culture creates big interest in little ideas. Here many ideas are given consideration — this is diversity.

The magic of Google is the informality among its teams. Decentralization should not be confused with autonomy. The free flow of information and ideas between decentralized activities is necessary for success. This again points to the critical role diversity plays. Free connections and corporate campus proximity facilitates Google’s use of its own diversity — all groups are allowed to impact inventive pursuits.

In contrast, Harvard University has a long tradition fostering autonomous departments that work in isolation. Yet, the university has recognized the importance of breaking down its autonomous culture to stay competitive. Earlier this year Harvard announced that it would devote $50 million to encourage a more collaborative approach to science research. The goal of the effort is to leverage the proximity of its own diversity to remain competitive within its innovation marketplace. The funds will be directed towards cross-departmental research and lab equipment and space, which is intended to not only break down the physical but also the mental walls that separate the university’s human capital. Harvard has already taken steps to create a new department focused on stem cell biology. The “Department of Developmental and Reproductive Biology”, will, for the first time, bring together researchers from the medical school and the faculty of arts and sciences under one university-wide department. Clearly, Harvard views diversity found among its departments as a competitive attribute worth leveraging to stay on the cutting edge.

As senior leaders or department managers, how often do we fail to utilize the diversity within our own organization? How often do we compartmentalize tasks, know-how, and ideas? How often to we shelter ourselves from our inherent diversity with high entry barriers?

If we acknowledge that we are, regardless of our industry, competing on an innovation landscape, we must then seek out diversity: diversity from around the world, from our backyard, and from within. Our flat world no longer affords us the time to rely on finding the “best practices” others have implemented or the patients for business theory to become mainstream before considering it actionable. We should not seek our twin when searching for improvement opportunities; we should seek out diverse inspirations for change and for a view of our future environment. Innovation success comes from looking beyond today and beyond our walls, looking farther a field than our competitors.

Likewise, our knowledge repositories and networks should not be measured on the basis of the number of contacts but by the connections found within them.

To Innovation, diversity is everything.

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