Wednesday, November 18, 2015

What Is Process Innovation Anyway?

It struck me today that not many people know what process innovation really is. No wonder when I tell people about my company, the raised eyebrows signal many suspicions that I’m simply selling snake oil.

But rest assured that process innovation is a real thing. It's also a very productive and useful thing. It’s very different from the dominant form of product-based business innovations (*ah hem, Apple*) that drive transactions we know today. Process based innovation is not well studied; it is more complex, slow to be seen because it attempts holistic results, and it does not attract capital attention because it is not solely focused on capital returns.

Only mature firms currently apply process based approach to refine their product based businesses staying current with market trends (Toyota - Six Sigma - set off a whole wave of this in may industry and sectors). Smaller firms do not have the patience nor do they see the value in the process based approach yet. This is because we still have some very antiquated worldviews about how the market innovates, creates value, and how we make productive gains in our global economies.

There is no time like the present to challenge the status quo, is there? First, understand that process based ventures mean the focus is on the existence of the market as an ecosystem. The market is presumed important. The default method calls for defining the market, then measuring and analyzing to design market strategies. Process based approach also involves ongoing updates of variability to control for market improvements. Process based ventures therefore adopt the deliberate slow approach to solving uniquely localized problems with ongoing "agile" improvement efforts.

Product based ventures on the other hand focus on the level of demand and profitability, rather than the existence of the market. The market is not presumed to be all too important. Innovation is therefore for the pure sake of innovation anew - hence our patent laws have to define novelty and usefulness criteria to award these nonsensical IP exclusivity rights. Ranting aside, it is important to recognize product based ventures, by default, are preoccupied with disguising the "product" and ignore the market. While process based ventures are generally tailored and localized to market and solution needs, product based ventures standardize components to incumbent products and enter multiple markets in plug-n-play manner. The goal is not the ecosystem, but of the successful product itself.

So who is really selling snake oil here?

Process based innovation ventures are not popular because they have traditionally been linked to long learning curves, painful consensus building exercises, tedious documentations for measuring impacts, and ongoing management of data validation to control for condition variability and need for new evolution of products in place. The process approach is also riddled with uncertainties based on the ongoing efforts of controlling variability of the system. But of course, venture capitalists do not like uncertainties nor are they known for their patience. Which is another reason why process based ventures are not popular among aspiring social entrepreneurs. These days, we find many of our peers thinking of the next great gadget the consumers will never want. Few are applying a process to seek localized product solutions that are needed. 

We began our social company from the opposite direction. We've been referred to as a unicorn of sort but I don’t believe in unicorns. So, we hope you walk away a little enlightened about process based ventures and why we believe in the business model. However, all things are about a balance. We caution that even the process must also be balanced against product market trends. To quote someone famous, one must be like water to move like water. So, we believe successful process ventures will exploit the generic nature of open technologies, will position themselves in upstream or midstream target markets to effect change from stakeholder upstream and return on investment downstream, and they will participate in both the market for sharing knowledge (licensing) and making products (generics). Product based ventures have had a narrower market focus historically which has given us an unsustainable consumer pattern. They have traditionally positioned downstream or midstream in their target markets for the product’s sake. Although they choose target markets with less uncertainty and assure capital investments with greater confidence, it is important to recognize that confidence is built on an incomplete understanding of the value creation and impacts the ecosystem where they presume the market is secondary to the product. So don't be fooled by the magic of products alone. Know the process and why we are making products. Be not afraid of the magic in process innovations.