Along the lines of Michael Porter’s value chain in strategy analysis, it is possible to conceptualize an innovation value chain. Often companies get stuck in a rut by confusing innovation with ideation and not moving beyond idea generation.

Recently, researchers at INSEAD have pointed out that “The [innovation value] chain starts with idea generation, but then moves to prioritising and funding ideas, to converting those ideas to products and finally to diffusing those products and business practices across the company.”

It is interesting how this maps into the ISmarts framework.

The problem with an innovation value chain is that it can mislead us into visualizing the innovation process as linear, proceeding in sequential stages, whereas in reality, the stages spill over into each other. The innovation value chain reminds me of the waterfall model in software development. Further, such stepwise conceptions of innovation make it easy to compartmentalize the organization into hermetic silos by assigning ideation to one department, budgeting to another, and so on. In the ISmarts framework, a focus on the abilities needed for innovation rather than on processes and stages, allows us to break free of sequential mindsets and compartmentalized organizations. But by providing a organized framework, ISmarts helps to structure chaos, or as Tom Peters puts it, ISmarts helps to provide the “disciplined disorganization” necessary for innovation.

An article last week in the Wall Street Journal (March 18, 2008) about how drivers are beginning to blindly trust GPS devices caught my eye. The article reports that by letting the devices overrun common sense, these drivers are “getting lost, hitting dead ends, and even swerving into oncoming traffic.” This reminded me of my growing up years in India, a time when my grandparents used to complain about how “digital watches” were not letting us kids learn how to tell the time.

The problem of overtrusting technology, and becoming inflexibly attached to devices and technologies is an old one. Dorothy Leonard in her Wellsprings of Knowledge wrote more than ten years ago about “core rigidities” which are the twin side of “core capabilities”, arguing that the core strengths of the organization are simultaneously core weaknesses. An organization derives competitive advantage from its core capabilities now, but is unable to extract itself from them and do other things when there is a need.

An innovative organization must recognize this need to remain flexible, which is why I argue that ISmarts is essential to develop and sustain in any organization that seeks to be innovative.

So , Starbucks will close for 3 hours today for Barista training. With fast food chains poised to steam into the espresso world, Starbucks had better do something to pick itself up. I’ve always admired the genius of the understated Howard Schultz. This is one step in the long process of recovery. But Starbucks should recognize that what will differentiate it from the competition is that it is in the service industry. As Schultz has obviously recognized, stores such as the one in LaGuardia airport offer anything but a “third place.” As far as I am concerned, that is the last place I want to be.

As I have argued in my many years of studying the service industry, customer service folks (in Starbucks’ case, the baristas) are the ones who need to be tremendously innovative and display everyday leadership: customer requests are as varied as they come and operational crises happen all the time. Some want room for milk, some what whipped cream. Some want it hot, some want it “ready to gulp.” The milk spoiled in the fridge, a kid spilled hot chocolate on another customer.

Baristas have to demonstrate everyday leadership. What does that mean? It means that the baristas must be able to handle unexpected circumstances with aplomb. They must make winning situations of what could be store-shutting crises. How can they do it? They must be trained to identify, develop, and apply the five leadership intelligences of the LSmarts framework–the analytical, operational, inventive, communicative, and ethical leadership intelligences.

What is the barista training doing today? Schultz says:

He wants baristas to share their passion for making espresso, or as he says, “to pull the perfect shot, steam milk to order and customize their favorite beverage.”

In other words, he wants them to be trained in”operational intelligence” (the key word is “customize”–customization cannot happen without intelligence).

But I hope Schultz is paying heed to training Starbucks employees in all the five leadership intelligences–such training will definitely perk Starbucks up.

Following my previous post, I have been considering the question of how hope and innovation are connected. The National Innovation Initiative has this interesting statement in its report:

America, in the end, is all about hope. And innovation is the societal and economic manifestation of hope.

I agree. But what is it that makes the manifestation possible? I believe that the change-agent is ISmarts. Different persons may have the same hope, but the hope will manifest itself in different innovations because of the different kinds of intelligence-driven innovational capabilities that we discuss in the ISmarts framework.

So one can say, ISmarts transforms Hope into Innovation.

One cannot escape all the talk of hope, reality, and change in the election climate. Barack Obama talks about hope, Hillary Clinton talks about reality, and both talk about change. Which leads to the question: Which of the two–hope or reality-orientedness–is more important for change and innovation?

The mistake we make often is to overemphasize the negative aspects of both hope and reality-mindedness. In its negative version, hope is an empty desire, an unattainable dream. Reality-mindedness in its negative version, implies a rootedness in the past, an inability to change.

But really speaking, both hope and reality-orientedness are necessary for innovation. While hope points to the “can be”, reality-orientedness indicates the “is”. Hope is the engine that drives new ideas, reality-orientedness is what makes the rubber meet the road. Hope dreams up the innovation, and reality-orientedness makes the innovation practical. Without hope, there can be no dream; without reality-orientedness, innovation will remain a dream.

In the ISmarts framework, hope would be more in the “Inventive” aspect, while reality-orientedness would be more in the “Operational” aspect.

Design-driven innovation is suddenly in the news these days. Following last week’s article in BusinessWeek, today’s newsletter from the Harvard Business School in my mailbox describes a research paper that discusses the merits of design-driven innovation.

The claim of design-driven innovation is that it is spontaneous, radical, and does not pay attention to customer needs. Most importantly, it relies on a clear division between the “outside” of the firm and the “inside.” It is claimed that companies that engage in design-driven innovation create radical innovation because they do not “listen” to customers.

This is however a myopic view–a knee-jerk reaction to the market survey-driven innovation that companies overemphasized in the past. In reality, it is not wise to eschew one approach and embrace another. Good innovators let good thoughts and good ideas come from all sides.

There are two points that I’d like to make here. First, ideas always occur at interfaces. No change, no innovation, no invention happens in isolation. Humans are triggered into new thoughts because of our interactions with the world outside us–with other humans, with systems, with nature, and so on. Design-driven innovation also relies on ideas that come from an interface–between the designer(s) as designer(s) and the designer(s) as customer(s). To claim that design-driven innovation does not listen to customers is not true. Like the cook who dips his finger in the broth to taste it, at the point of design, the designer is also a customer. It just happens that design-driven innovation has only one customer in mind–the designer.

The second point is this: The best mousetrap will not succeed unless the market is ready for it. Credit cards–a fantastic financial innovation–were introduced in the 1930s. They did not take-off during the depression (surprise for design-driven innovation!). They were revived in the 1950s by Diner’s Club, and in the 1960s by the Visa conglomerate. But credit-cards had to wait for the 1980s to see real wide-spread acceptance. As I have done in some of my academic work at Wharton, from a microeconomics point of view, we can explain this phenomenon of slow growth on the basis of network effects–the credit card is a product whose success depends on the size of the network of users. But that’s the whole point–it is the customers who ultimately call the shots on “successful innovation”. A singular emphasis on design-innovation to drive all innovation blurs the difference between invention and innovation. From the definition we use at Vivekin Group, an innovation is a new idea or invention that is of value to a society. An invention that comes out of a design-driven approach may or may not have such value immediately. How often have we heard of inventions “before their time.”

In sum, I do think that being design-driven is important for innovation, but it is not all-important. To paraphrase the Hindu Upanishads, “Let good ideas come to us from all sides.”

In a recent post titled Innovation at Risk on the innovation blog at Business Week, Lara Lee points out that in hard economic times, companies do not innovate and that innovation happens when the times are good. However, as I see it, there seems to be hardly any correlation between economic good times and innovation. I am thinking back to research that was done at Harvard in the 1980s. This study by Jaikumar et al about the use of new technology in the auto industry found that in the late 1970s and early 1980s, Flexible Manufacturing technology was being embraced by the Japanese auto firms, but Detroit was rejecting it as unnecessary given that they had such large market shares. Well, we now know the results of such innovation lethargy. Thus, for many companies, when the belly is full, it is time to nap. Complacency kills innovation.

On the flip side, does necessity foster innovation? The jury is out on that question too. Some companies foolishly think that innovation is “fluff” that does not contribute to the bottom line and in knee-jerk reactions, in hard times, they shut down innovation when it is needed most. On the other hand, there are numerous examples when companies have used innovation to work themselves out of hard times. So, it is difficult to make a good connection between economic climates and a company’s investment in innovation.

So what is it that drives innovation? To generalize, innovation stems from (a) the recognition of a need and (b) an impulse to fill that need.

Sometimes, the recognition of a need is thrust upon us (especially in hard times) and sometimes, it is spontaneous. Similarly, the impulse to innovate to fill a need is sometimes forced upon us and sometimes seems to have a life of its own. Good companies hedge bets by innovating constantly.

From a personal perspective, I find it thrilling to work on understanding innovation, which I consider one of the most complex and fascinating responses that we humans make to the environments in which we operate.

I heard a fascinating piece on NPR that in some ways relates to the post I put up a couple of days ago on the Tata car and innovation-society dynamic. The whistling thorn tree in Africa protects itself from being eaten up by elephants through an interesting adaptation. It secretes a tasty sap that draws thousands of red ants to it. When elephants try to eat the tree, these mercenary red ants attack them and thus the tree is protected. The NPR piece however piqued my interest further as it went on to discuss an experiment that Dr. Todd Palmer of the University of Florida has been conducting.

Dr. Palmer wondered what would happen to the red ant-tree alliance if there was no danger from elephants. Would the tree stop generating the sap? So in his experiment, Dr. Palmer created elephant-safe enclosures for some of these trees and watched for 10 years. One would think without the elephant danger, the trees would flourish, right? But a decade later, many of the “protected” trees had died and the others were growing more slowly than before. Why? Most of the trees had gradually reduced the production of the sap–when there is no danger of elephants, why produce sap and host red ants? So with sap reduced, the red ants had gone away. But now, various other insects came on to the trees, and some of the trees now have big holes, and others died.

From a business innovation perspective, what is the lesson? First, as I noted in the Tata car post, one never knows how the society-innovation dynamic will play out. As the biologist Mark Bertness of Brown University remarks, “It’s a reminder that you never know what you are going to get when you mess with Mother Nature.”

Second, some analogies between this tree-ant-elephant story and innovation management are also worth considering. Like the analogy between reducing sap production and optimizing production in an organization; or the analogy between the certainty with which the tree assumed red ants are needed only to fight the menace of elephants and the projections that we make with certainty in our strategic decision making.

See any other analogies?