The innovations that do not matter

Innovations do not always lead to the increase of the competitive advantage, market share or profitability.

Using the Island Bridge model, when the second bridge is built, the traffic starts to distribute between the two bridge, so the revenue of the first bridge falls. The first bridge now has the pressure to innovate in order to attract more customers, one of the employee suggest that they replace all the traditional light bulb with the new LED lights, so that it will look cooler. In the meanwhile, the second bridge is not stopping as well, they performed a customer survey and found out that many customers do not like walking in the rain, so they install a shield on top of the bridge, so that Pedestrians can walk on the bridge without the need of an umbrella. The result is that more people are choosing the second bridge in lieu of the rain.

From this story, we can see, not all the innovation can help the product to gain a competitive advantage, only those innovation that can address the customer needs directly (new function, such a the shield) or indirectly (e.g. new processes to reduce the cost for cost sensitive product/service) will matter from a business prospective.

Profit, Monopoly, Competition and Innovation

In this article, we will discuss the relationship between profit, competition, monopoly and innovation using the previously establish Island Town (IT) model.

Between the IT and ML, there is a highly profitable toll bridge (TB) running by Bridge Co.(BC) The profit from the TB attracts competition. Another company Competitive Transportation (CT) decides to build another bridge(AB) and only charge half of the price of the original toll bridge. In order to keep on attracting passengers, BC is forced to lower the price of TB. This hurts the profitability of BC. From this example, we can see, profits attract competition which reduces the profit margin of the industry.

There are a few options for BC to continue enjoying the high profit margin. The first option is to purchase CT and remove/limit the second bridge. This kind of purchase of large scale will often cause suspicions of the violation of antitrust regulations by the government. Indeed, monopoly is unhealthy for the economy.

The second option is to lock in the passenger, so that they cannot easily switch to the second bridge. For example, if the passenger like to ride bus, they can convince the city to route the bus via their bridge instead of the other. Alternatively, if there is a ticket booth for the theme park on the island, they can place the ticket booth at the end of their bridge, so it becomes inconvenient to use AB. This type of customer lock in is in the gray area of the antitrust regulation, you can actually see that here and there once in a while.

The third option is to provide more customer value on the bridge. For example, BC can install festival lights on TB to make it not just a transportation site but also a tourist site. BC can put up some booth for farmers to sell their produce on the bridge which makes the bridge literally a farmers market. BC can set up a car wash machine at the end of the bridge, for those paid the toll, they can enjoy a complimentary car washing service. With all these added values, TB becomes a consumer monopoly. Although BC do not enforce consumers to choose TB, practically, the majority of the consumers choose TB and pay a premium for it. This type of value based consumer monopoly strengthens economy by creating both highly paid jobs and value add on products and services. This is the innovation that we all strive for.

Island Town(IT) as a model system to study Innovation

In the economic system, each industry sector even product line have unique characteristics, which make the problem of innovation both interesting and hard to generalize at the same time. Here, we introduce a model system Island Town (IT) to study the strategies of innovation, monopoly and profitability.

There is a small town called Island Town located on a Island that is detached from the mainland (ML). This island town has many attractions such as restaurants and parks, people on the ML often love to spend time on the island. Since it is a small town, it does not have a full spectrum of industries, as a result, it relies on many businesses on the main land to survive such as post office, banks, etc. The best way to commute between the island town and the main land is a bridge which is owned by a private company Bridge Co (BC). BC installed a toll on the bridge to charge a fee. Because this is the only bridge between the IT and ML, they can charge a hefty fee for passing the bridge, thus the bridge became a profitable business for BC.

Managing Innovation Conversation With Employees

When an employee brings up the topic of doing innovative work, the management should try to provide supports and guidance to foster a innovative culture. Here are some examples of innovative conversations that have gone bad.

Employee : "I wanna work on project XXX because that will be an innovation."
Employer : "Are you not interested in your current work? Maybe you should consider a career out side of our team. "

Employee : "I wanna work on project XXX because that will be an innovation."
Employer : "You are currently working on YYY, how about let's do YYY +0.001 XXX. Will that be innovative enough?"

Employee : "I wanna work on project XXX because that will be an innovation."
Employer : "If you wanna work on XXX, you got to learn ZZZ, WWW, OOO techniques, after learning all those, we can talk. " (Those techniques are not essential, and complete mastering them are neither necessary nor sufficient for the projects.)

Comments like these can dishearten the motivated employees who wishes nothing but doing innovative work for the organization.  Here, I prescribe a few conversation patterns that can be used to facilitate a healthy conversation with the employee. The basic pattern is called confirmation, encouragement and guidance(CEG).

"This sounds like a very interesting idea(Confirmation, Encouragement), how about let's build some prototype in your spare time. When you gets it ready to a certain stage that we can demo it, lets show it to other people in the team to see whether we can get it funded and move to the next level. (Guidance) "

"Wow, you mean you want to do XXX? (Confirmation). This is way cool! (Encouragement) I know a few folks in team aaa are also interested in it. Let me get you guys connected. Wait for my email tonight. (Guidance)"


When management are trained using CEG to manage innovation conversation, the innovation culture will grow gradually.

Innovation Strategies in Large Corporations

Innovation is the process of inventing new businesses and technologies. This article describes the strategies and processes that organizations can employee to create a culture of innovation.

Creating an innovation culture in the organization includes three parts. The first part is to remove the hurdles of innovation, the second part is to provide incentives for innovation, the third part is to creating innovation momentum in the organization. 

The first step to accelerate innovation is to remove the hurdles of innovation. The common hurdles for innovation include the inaccessibility of human resources, facilities, and  unmotivated management. 

In some IT companies, to encourage the exploration of new ideas,  the employers allow employees to spend 20% of their paid time to work on projects that are not in the regular plan. To build collaborations between employees who share similar interests,  employer can also build employee skill database and share it across the whole organization.

Unmotivated management can be discouraging for motivated employee. It is beneficial to train the management on managing innovation related conversations. For example, when an employee brings up an innovative idea, the management should provide support and guidance even if the specific idea is not entirely practical at that moment. 

The second step to accelerate innovation is to provide incentives for innovation. In traditional organization, the compensations are not necessarily tied with employee's ability to innovate. As a result, the organization can establish innovation themed award independent from the regular compensation scheme. 

Other than financial incentive, innovators can also be awarded with publicity on internal publications. 

The third step to accelerate the innovation is to create momentum. To create a culture of innovation, the organization can organize innovation themed activities such as Hackathon, product fair/competition, intrapreneurship competition.