I wrote here about a quote I found and challenged its premise that companies no longer innovate once they find their “cash-cow”. I used Google as an example of an innovative company however Chris Saad made the very fair point that really Google’s “cash-cow” was not search, but rather advertising revenue.  Most of its innovation was about advertising, or product to drive advertising and not net new to the world. 

So is the original quote right after all? To summarise I’ll break it into two seperate ideas:

1. Companies innovate until they make money (their cash-cow), then protect this revenue stream agressively.
2. In protecting their cash-cow, they innovate only around this core idea and in doing so ultimately kill future innovation.

It seems useful at this point to define innovation.  Drawing together the various sources and definitions, I think innovation looks something like this in a business context.

Innovation: Reengineering existing products, processes and ideas to create novel applications that reduce costs or increase revenues.

And as part of the problem is confusing between innovation and invention, we should also define Invention.  This definition from Novagraaf sufficiently appeals that I’ll use it here:

Invention: An innovation that is both novel and non-obvious.

So, back to point 1.  I’m going to take it as read that this is fairly non-contentious. Companies start out with some product or service they believe is sufficiently different on some parameter (location, cost, scale, convinience, leverage, uniqueness etc.) from other competitors that they will make money.  In some instances, these initial innovations are sufficiently novel and non-obvious they qualify as inventions.

To the second point, that innovating around core ideas kills innovation, I just don’t buy it.  I agree that many companies have one good invention, but the company that fails to continue to innovate, improve and find new ways to generate revenue is dead in the water.

So back to Google – here’s how I now see it:

• They invented a new way of doing search
• They hit on their hedgehog idea which is to generate money through advertising
• They continue to innovate around this hedgehog concept to create more, and different ways of making money from advertising.

Chris in his blog post on Google raises some great points that are worth a read — and challenges us to consider if Google have moved too far away from their initial invention?  Have they diluted their value through continual innovation around revenue raising instead of focussing on a great search engine?

Wether they have or not, time will tell, but there are plenty of innovative and inventive companies out there ready to take advantage if they fail.  The web never stands still.  Even old hands haven’t given up the game although will they succeed or not? 

One thing I can safely say is that companies, Google included, will continue to try and be innovative.  With the internet, whether that innovation ultimately succeeds or fails is more than ever before bestowed in us as users to make the vote with our media consumption habits

Thanks Chris for the comments and material that sparked some ideas for this post.

 Just read this post here at Deal Architect about Vinnie Mirchandani’s MAGIC framework.

I’ll come back to this in a later post, but for now it’s just to note it here and say I think there is real merit in what he has to say,  in particular about the relationship between CIO’s and vendors.  For most Enterprises, the challenge is to close the gap between the innovation cycle in the consumer world and the needs in the enterprise.  I believe this gap is starting to close, but CIO’s and vendors are going to have to partner more to help it get there.

Touchstone popped this up from the blogosphere:

Every company innovates until it finds a cash cow. At that point only innovation that supports the cash cow is promoted. Further, any innovation that threatens or does not support the cash cow languishes or is actively killed. Eventually, most of the true innovation ceases as the innovators leave and start new companies and the cycle repeats. From The Walrus and The Carpenter

Certainly at first glance there is some merit in this. But is it really true? After all, IBM originally created calculators (although there is a good argument that the computers of today just do what these machines did but faster), but at some point ended up a leading hardware and software company — in fact they define their business principle as innovation.

My view on this is that I think it’s true to say that there are very few (if any) companies that change tack once they hit on their Hedgehog Concept (from Jim Collins in his book Good to Great). But does this mean they don’t innovate?

No.

Google continue to innovate and produce new web based solutions, some centered around search, others outside of this. But then their hedgehog idea would be something along the lines of being the worlds leading on-line software company. They don’t innovate around cars.

The challenge for all businesses is to ensure that having a sound hedgehog concept — knowing what you are good at — doesn’t detract from allowing news ways of doing what you are good at to creep into vision. Many of us would be familiar with the project mentality which is that when under pressure to manage costs, time and scope, the natural reaction is to do things the same way I did them last time. While sound project and business practice, it’s the biggest “anti-innovator” within corporates today in my view.

This is where Enterprise Architecture can help. I’ve created this diagram to show how I try explain the relationship between Architecture and Innovation.

Sound architectural practices are key to innovation. Without a view on the future, and a drive to ensure that projects comply and take advantage of newer technologies, innovation will always be constrained. Staying too focussed on what you’re good at, and not challenging the boundaries and introducing managed risk means you will never be innovative. Good Enterprise Architecture can help.

I found this Wall Street Journal video here at The Lost Remote.  One of the things I’ve been working on at the moment is a retail sector publication on trends and issues for 2007.  This video sums up succinctly the message I’ve been trying (like many others) to get across - the world of communication (as in Internet and Mobile Phones) is fundamentally changing.

Apart from being an entertaining little video, it issues some real challenges which is to get our heads around some of these types of features.  Particularly for retail (ie consumer focussed sectors) understanding where the internet and mobile technology is going will be key to early mover advantage and future success.  Taking advantage of the application driven nature of the Web 2.0 and plugging services together with proprietary systems is the compelling challenge for companies today — even if they don’t realise it!

From an Enterprise Architecture point of view, an SOA view of the world is becoming even more critical.  It’s all a service, wether it’s an internal or external application, the boundaries are changing.  With a strong services focus internally, then mashups between internal and external apps become compelling value adds for consumers and the companies that serve them.

Here’s a simple example, using Plazes, another interesting startup I’ve come across recently.    There’s a similar service shown in the video.

Plazes is at first glance locating you on a map. Kind of neat, but when you explore it under the hood a bit you realise it’s also a locater service for friends and others in your area.  For a retailer, the scenario could play out like this.  Set up Plazes, place your retail outlets, let your customers hook up as friends then use the Plazers service to let you know when your friends (ie. customers) are near your location.  This kind of location mashup could be put together quickly with a prior investment in SOA internally, enabling you to then link the friends to your backend systems, work out what they’ve purchased recently then contact them to tell them that there is a special offer available now if they come into the store.

What the Web 2.0 evolution is doing is removing the requirement for us to wait for big vendors or vertical applications.  Enterprises should be acting now to ensure that they are ready to grab the best of the web and put it together in innovative ways for their customers. 

That means sound SOA strategy so that agile developers can pull together the systems they need to create compelling applications.

I’ve been impressed with the quality of a number of developments I’ve come across recently coming out of Australia.  It seems to be a hot bed of Web 2.0 type activity with some world class products.

Three that take my fancy are:

• http://www.atlassian.com Makers of Confluence, which is a great Wiki product, and one that for Enterprises makes a lot of sense given its flexibility, plug-in support and in particular focus on security. Yes, I know security is almost anti-wiki, but reality bites. No serious Enterprise will consider a Wiki without SOME level of security. Even those that are happy for open editing will want attribution at a minimum.
• http://www.touchstonelive.com/ These guys are producing what has to be the most ambitious RSS reader I’ve come across. If they can pull it off, then the features they are talking about will make this a real winner for Enterprises who want to provide staff with both a News Reader, but also control, limit and help manage some portion of the content (e.g. everyone in sales MUST get this feed about latest leads).
• http://www.tangler.com I’ve just joined the beta community for this one, not sure at this point in time that it’s an Enterprise solution, but for web-based communities, Tangler looks to have some real winning features.  If the thought of mail group type communities with a home and integrated IM sounds interesting, keep an eye on this one.

The point to all this is that there is some great content and ideas coming out of Australia (skills shortage anyone?), although they go to some lengths to hide it (smart marketing — size of Gen-Y in Australia, about 4.2M, in the US over 79M) to the extent of spelling Mum as Mom.

Keep it up guys! Lets spread the message that there is some fantastic product coming up.

Welcome to BinaryPlex - my blog about everything, but primarily a business centric view on Web 2.0 and various emerging sites surrounding this.

This domain has been around for a year or so now and used for various experiments — so this may not be what you were expecting to see! However if you’re interested in new technologies, and in particular the impact these have on your IT strategy, then this is hopefully a place you’d like to come back to.

Happy surfing!

Tim