Innovation and a Network Effect

by Jeffrey Phillips

Innovation and a Network EffectThere’s been a blog post rattling around in my head for several days now, but I haven’t been quite able to grasp the handle of it. So stick with me here as I work it out on (virtual) paper.

We all are aware of the benefits for innovation that occur when we as individuals network with other people, other markets, other industries, other ideas. Research recently published by the Harvard Business Review indicated five attributes of successful innovators. One was a clear proclivity to network and exchange information and ideas with a broad array of people. Clearly, what I’ll call “outbound” networking is important.

But there’s another networking that’s at least as important for successful innovation, and that one is a little harder to pin down, yet like the nose on your face is sitting in the open right in front of you. This network has to do with the concept of critical mass and competition. If you think about this for a minute it will become obvious – markets or industries where competition is high see a high degree of innovation, and the converse is also true. Markets, industries and countries with little or no competition, whether that’s from government policies or a dearth of firms to compete or natural or unnatural monopolies suffer from low innovation. If we take that as a given, then innovation is more successful when there is a critical mass or network effect in an industry or market.

This says something to us about innovators in an individual firm as well. The myth of the “lone innovator” is a powerful one, since we are lead to believe from history that individuals like Edison worked alone and in a vacuum. Neither of those suppositions is true. Edison, for example, worked with a number of collaborators in a lab specifically designed to mix ideas from a number of different industries. This has implication for innovation in any firm – rather than “select” a couple of people and ask them to be innovative, we need to create a critical mass of innovators who are networking with each other and sharing ideas and concepts within the firm and outside the firm. Instead of selecting just a few people and asking them to be innovative, we need to create a critical mass of innovators inside a firm, and allow them to interact and exchange ideas, internally and externally. Walling off the innovators from the outside is dangerous, as we’ve demonstrated with the first concept of the network effect. They lack access to all the new ideas, trends and information created in their industry and in other markets and industries.

What’s also true is that kicking off one or two isolated and very small innovation efforts while the rest of the firm “stays focused” on the important daily tasks makes innovation more difficult. Imagine if Chicago were to allow only three pizza restaurants. Eventually innovation in pizza would slow down or cease due to limited competition and limited new ideas entering the Chicago market. Allowing as many pizza places as the market can bear, and watching the competition and new offerings closely creates lots of “pizza innovation”. Similarly multiple innovation teams within an organization that exchange information with each other, and with other firms and markets, will create more and better innovation.

Don’t read into this that “skunkworks” are the wrong solution however. Occasionally skunkworks are the best way to accomplish one specific innovation task – a big new disruption. But on the whole many actively engaged innovators in a firm, exchanging ideas and information, will create an internal network effect and accelerate ideas. Note that this is almost in opposition to what most firms construct when they attempt to become more innovative. Usually they designate one specific team while the rest of the business plods onwards. There are no other innovators within the business to interact with or compare notes. Additionally, there’s no one to “compete” with for the best ideas, and no “synergistic” effects created by multiple individuals or teams.

While there is definitely an external networking effect brought on by discovering new ideas, new trends and new information from other industries and markets, I believe there is an equally important and often overlooked critical mass or internal network effect that is missing from many firms that attempt to become more innovative. Creating more innovation teams or individuals and ensuring they interact, exchange ideas and compete for resources and attention will drive more and better ideas.

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Jeffrey PhillipsJeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of “Make us more Innovative”, and innovateonpurpose.blogspot.com.