How did you fall in love with the quest for understanding innovation?
Greg Satell: Well, I spent the majority of my adult life managing companies, and I think anybody who’s ever managed operations has felt an incredible pressure to innovate. What wasn’t quite so clear was how you go about it. So, whenever I looked for guidance there weren’t enough good ideas about innovation. It seemed like everybody had an idea about innovation.
You talk to some people, and they start talking about design thinking. And, you look at it, and it says, Okay, well, you focus on the needs of the end user and then work back and rapidly iterate and prototype towards a solution to meet those needs. And you think, wow, that really makes sense. And then you find out that Steve Jobs lived by these principles.
Stanford has built an entire school around it. And you think that really must be how you do it. And then you go, and you read Clayton Christensen, “The Innovator’s Dilemma” and disruptive innovation. And he says, that’s how good companies go out of business because they focus too much on their customers.
And they don’t notice when there’s a change in the basis of competition. So, you know, how can both of those things be true? And then, you know, there’s open innovation and lean startup and business model canvas and then on and on and on. And it’s like a confused jumble of innovation ideas.
So that’s what sort of set me on my journey to find an answer to those questions. I wanted to answer a fundamental question, which is, we have a lot of great innovation tools, but when do you use one rather than the other? How do you integrate these tools into a really old toolbox that you can use to address different types of problems?
Is innovation about making quick decisions?
Greg Satell: I don’t think innovation is about making quick decisions. Some of the most critical innovations play out over decades. I think the fundamental problem is if you look at innovation versus other disciplines, such as finance or marketing, where there are clear tools and clear trade-offs between tools, I know you’re a finance guy.
I mean, every finance guy knows that you have debt solutions and equity solutions, and knows that there are specific trade-offs between them. Where it seems to me with innovation, we hadn’t even really established what those trade-offs were. So that made it very difficult to make sensible decisions around those different solutions.
Gennaro Cuofano: as you pointed out, in the book, innovation, it’s very long term process, which takes many people, many teams, many years. That is not something that happens out of the box.
What are some of the myths surrounding innovation?
Greg Satell: All too often, people, they confuse innovation with product development. Right? If you’re talking about product development, that has quite a bit of time pressure. But, a lot of things happen before you get to the product development stage.
If you were running, let’s say, an internet business, before you can have an internet business, you have to have the internet infrastructure. That takes quite a bit of engineering to build the Internet; it took a long time to build that internet before anybody could build a business based on internet technologies and before you could build internet technologies, you needed some fundamental discoveries about information, about how transistors work, about how you make a microprocessor.
So all of that takes quite a bit of time. And, I think the biggest misconception is that innovation always happens as a separate event. But real innovation, more broadly speaking, tends to be a set of handoffs between three phases:
The discovery phase
The engineering phase,
And then the transformation phase.
And I think all too often, we focus just on that late stage and forget about what comes before it. And I think that leads to a lot of missed opportunities. Because if you aren’t looking upstream at those technologies, you’re always going to be at least a few steps behind.
Gennaro Cuofano: In your book, you have a matrix that you use to understand how to map innovation.
The Innovation Matrix from the book “Mapping Innovation” by Greg Satell
Greg Satell: The key insight of the book is that innovation is really about solving problems. And innovation, the definition I give for innovation in the book is a novel solution to a significant problem.
So the first step to solving that problem is to classify what kind of problem it is. So the different quadrants in the matrix aren’t supposed to be a different part of the process, but it’s always supposed to be forward-looking. So the purpose of the innovation matrix isn’t to classify innovation in the current time.
Quite often, people ask me, well, which quadrant is this innovation? You know, or this technology? And obviously, I don’t know until I understand what problem they were trying to solve, because the innovation matrix is designed to always be forward-looking.
And the way it is set up is just to ask two basic questions about your problem:
First is, how well is the problem defined? For example, could you define a technical specification for this particular problem? If you can determine a technical specification, well, then that’s a pretty well-defined problem.
And the second question is, how well is the domain defined? Meaning what set of skills do you need to solve this problem? Again, sometimes you can define those domains very, very well, you can think exactly the job descriptions you would use to help staff up a project like that.
Sometimes it’s not at all clear what domains and quite often we see things kind of spin their wheels when a domain is not defined. One of the case studies I used in the book was InnoCentive, which is an innovation platform.
It’s an open innovation platform. And it works really well when there’s a very well defined problem that nobody can seem to solve. And, as it turns out, most of the time, the reason those problems couldn’t be solved was that the domains were poorly defined.
For example, somebody thought this was a chemistry problem. And none of the chemists could solve it. But somebody in some adjacent field, like a physicist, or biologist would come in and say, Oh, we can solve problems like that all the time. Here’s how you solve it.
And then, in some cases, problems that had been around for decades were solved within just a couple of months. And some of them were really big, important problems. So that’s the power of the innovation matrix is by narrowing down what set of solutions or what set of strategies are best fit to solve a particular problem.
Gennaro Cuofano: So it’s a tool to understand how you can actually innovate by going forward. And in the book, you point out that, most people focus on two kinds of innovation, which get most of the attention, which is the breakthrough innovation and disruptive innovation that both are on the opposite side of the quadrant.
But you also point out that sustaining innovation, which is based on a well-defined problem and well-defined domain is also very important, especially from the business standpoint.
How important is sustaining innovation?
Greg Satell: People often derived sustaining innovation as incremental innovation. And they think it’s not exciting enough. But you know, Moore’s law is incremental innovation, and it’s served us pretty well for the past 50 years, it created the digital revolution. So that’s pretty good.
The truth is, about 70% of your value is going to come from sustaining innovations. And that’s where you want to play most of the time. That’s why design thinking, which is really a sustaining innovationstrategy has become so incredibly popular because for most problems, where you have a well-defined domain and a well-defined problem, it’s an incredibly effective process.
The problem is, of course, if it is not a sustaining innovation, then design thinking doesn’t work that well. If you can’t define that problem very well, and if you can’t define a domain very well, then you can’t really define that multidisciplinary team that’s supposed to execute design thinking projects.
So, once you’re able to identify something other than the sustaining innovation, then you say, wait a minute, we need to look at a different type of problem, we need to address this problem differently than then we normally would.
Gennaro Cuofano: it’s very easy to get confused in the business world when it comes to the understanding of what tool to use. And you know, in many cases, we think one tool can be used for any scenario. For instance, many believe that a tool like lean startup can be used in any kind of situation.
But as you point out, specific tools, like the LaunchPad, can be used just for certain kinds of innovation. For instance, the LaunchPad is useful when the domain is well defined, but then the problem is not well defined, because you need actually to understand it from a few visionary customers.
In which scenario, the lean startup helps to find the right path toward business innovation?
Greg Satell: Lean startup methods are solutions looking for problems. And if you talk to Steve Blank, which I have on several occasions, you know, he is wholly driven about customer discovery, he said, he told me once when he first came up with all of this, he said he had retired.
And, he was in a ski lodge with his wife and kids. And he was trying to write his autobiography. And he had a lessons learned section at the end of each chapter. And what he realized is that every time he stayed in the building, things tended to go quite poorly.And then when things started going quite poorly, and he started getting out of the building to find out why they were doing so poorly. Things started going much better.
And that’s because when you have a startup, you have a solution. And you’re going out looking for the right problem. And one of the most interesting things about the lean startup is when they started applying it at the National Science Foundation to grantees, these were incredibly successful and prominent scientists who had discovered something significant.
And they were trying to build a business off of it. And as they went through the Lean LaunchPad process, every single one of them found that they had the wrong application. And because they were able to find that out quite early in the process, they saved a lot of time that would have been wasted.
And they, I think tripled the success rate of those commercialization grants simply by understanding that they had a solution but they had no idea what the problem was. And the trick was to really go and find out that problem that your solution can solve as soon as possible because until you do that, you don’t have a business.
What instead is a classic example of breakthrough innovation?
Greg Satell: My favorite story about that is which I tell in the book came to me from one of the tech companies they didn’t want to be named. And for all I know, the story may be apocryphal, but they had a contract to develop a sensor that could detect pollutants in the water at very, very small, concentrations. So they put together a team of really good chip designers.
And they were throwing around ideas for about 45 minutes how they’re going to solve this very, very tough problem. So they understood the problem very, very well. They had a technical specification. They knew exactly what problem they had to solve. But it’s a very, very tough problem.
And about 45 minutes into it, the marine biologist who was assigned to their team, he comes in with a bag of clams. And he drops them on the table, and everybody looks up, and he apologizes for being late.
And they’re looking at the clams he said, oh, these he said, but you see, these clams, you know, they can detect pollutants in water, very, very tiny concentrations, a few parts per million.
And when that happens, their shells open and so he said, so we don’t need some super sophisticated chip that can detect pollutants in water. We just need a straightforward sensor that can detect when the clams open their shells. And so they said it was a million dollar contract, so they saved, you know, $999,000. And apparently, they ate the clams for dinner.
So, I mean, that fact about clams, that’s something that very few chip designers would know. But pretty much every marine biologist would know that. So when you come up against a problem that you can’t seem to be able to solve through conventional means. That means that you need to start searching domains very much the same way that in a lean startup process. You need to go search for problems.
Gennaro Cuofano: In business school, one of the first frameworks that we learn is Porter’s Five Forces, the SWOT analysis, to assess your competition. And that’s how you at least try to determine the strategic analysis of an organization.
Are tools like Porter’s Five Forces and SWOT Analyses still useful in today’s business landscape?
Greg Satell: There’s a real problem with the ideas behind competitive advantage. I think that was much better suited to an earlier world that moved much, much slower, things evolve much more quickly now. And power is much more disperse.
Today we compete in ecosystems, not so much these very well structured industries. What industry is Apple in? What industry is Amazon in? What industry is even Tesla in? Is it the car industry? Is the renewables industry?
And the problems that we need to solve today are so much more complex, that nobody can really solve them on their own. Let me give you an example of how things have changed. And I think this is a very, very stark example.
In 1981, or 1988, actually, IBM realized that they had a real problem in their business. They had missed out on the minicomputer revolution, and that had shattered IBM’s dominance in the mainframe market, which they’ve held at that point for two decades.
And they saw that now PCs, those personal computers (we didn’t have the term PC in 1980), that these small personal computers were about to disrupt the minicomputers and they had no way of getting into this market. They were nowhere.
So they set up a skunkworks in Boca Raton, Florida, completely separate from the rest of IBM. And in less than a year they developed and launched the PC, which of course was a significant triumph and had a big effect on putting IBM back at the center of the technology industry.
And that was very much in Porter’s world, right. How do you dominate that value chain, right? How do you maximize your bargaining power throughout the value chain? And that’s how IBM succeeded with the PC.
Today, IBM is at a similar point, computing is changing once again, the digital revolution has mostly run its course, it’s in its last days, the underlying technology is not going to improve that much more, and the development of that technology has slowed to a basic crawl.
So we’re going to have to move to non-digital computing architectures that are potentially thousands if not millions of times more powerful than the digital technology. And one of those platforms is called quantum computing. This is a very, very important technology for IBM, but they’re taking exactly the opposite approach to the PC.
Instead of setting up a skunkworks somewhere. They’ve set up a network just aroundquantum computing, which involves universities, national labs, potential end users, people like Samsung and Barclays Bank and JPMorgan Chase, as well as several startups, who are developing tools and applications for quantum computing.
An absolutely different approach. And when I asked Bob Suter who heads up the quantum efforts at IBM, but he told me, he said, it’s a much different kind of problem. It’s far more complex than the PC problem was, and we have to take this much more collaborative ecosystem type approach, or we don’t have any chance of competing.
And when I talked to other companies who are active in the space, they told me the same thing. So, I think that’s how starkly the World has changed in the past 30, 40 years or so.
Gennaro Cuofano: You’re saying it’s not possible anymore to control the value chain because the world has become much more intertwined. And so what you want to do is actually to open up to allow the creation of those networks and ecosystems?
How has the business world changed?
Greg Satell: I think it’s even more than that. I believe that very activity that Porter suggested maximizing your bargaining power and, and exercising that bargaining power can actually hurt your position in the ecosystem.
So just a few words about ecosystems. An ecosystem is really a network of networks. And for the past, since 98, over the past 20 years, we’ve really improved our understanding. This is actually what my new book Cascades spends a lot of time explaining.
We really understand network dynamics very, very well now, and I think when it comes to ecosystems, there are two basic rules you need to keep in mind.
The first is, is that the power in an ecosystem emanates from the center, not from the top, as in a hierarchy or in the value chain.
And two, that you move to the center by connecting out and that’s somewhat counterintuitive, but it’s true. So I think every business needs to adopt those basic new rules.
Gennaro Cuofano: This makes me think, as we need to understand ecosystems, and be able to build them.
Is the business model canvas a useful tool for that?
Greg Satell: A tool, like the business model canvas, and by the way, Alexander Osterwalder has been a friend for years. And, as I mentioned in the book, I talked to him a little bit about how he developed the business model canvas, but I think you can actually see the business model canvas as a first map of the ecosystem.
And if you think about the process of going through that sort of iteration, through the business model canvas, is looking to see where you can make connections. You know, there are partners in there, you know, who are you, who are you going to be your partners?
And you go through, and you find who’s willing to partner with you, where you can make those connections. So, I think the business model canvas is an absolutely great first step to competing in an ecosystem-driven world. Does that make sense?
Gennaro Cuofano: Yes! Thus, the business model canvas, is the first tool for mapping, how from the inside and the outside a firm makes sense in an ecosystem but then, I guess probably new tools will help us better map where we are in terms of building up those ecosystems.
In your book “Cascades” you focus on the whole ecosystem. So it starts to make sense to understand the business world from an ecosystem standpoint.
How do we understand ecosystems?
Greg Satell: I talk quite a bit in mapping innovation about how innovation is a process of discovery, engineering, and transformation. What “Cascades” does, it really focuses on that and explains how you get an idea to spread or how you scale an idea using lessons from social and political movements, to apply them to corporate and organizational transformations.
How important is to build ecosystems for scaling up a business?
Greg Satell: For starting a business is all about identifying a problem and addressing it. But scaling that business more and more, you have to understand something about ecosystems and networks, because ecosystems and networks, that’s basically the platform through which information travels.
Gennaro Cuofano: Thank you very much for joining me for this conversation, Greg. It was a pleasure. And I really hope we’re going to have a follow-up session, really focusing just on business ecosystems. It was a pleasure having you with me.
Greg Satell: All the pleasure is mine. Thanks very much for having me.
Key takeaways
Some of the most critical innovations play out over decades. It is a misconception that innovation is a single act of a single person
Innovation doesn’t happen just in the product development stage. A lot of things happen before you get to the product development stage. And innovation starts way before than that
Innovation is really about solving problems. Indeed, by starting from a well-defined problem, with a non-well defined domain, that is how breakthrough innovation is achieved
To map innovation you can ask two basic questions to assess how well defined is the problem and the domain
About 70% of your value is going to come from sustaining innovations. And that’s where you want to play most of the time. Thus, also sustaining innovation plays a key role in the business world
The basis of competition has changed in the last decades. Innovation relies way more on building up ecosystems
In starting up a business, it is critical to start from a problem. To scale it up though, it becomes more and more about ecosystems. An ecosystem is really a network of networks and it requires a different approach!
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
