[Case study] Innovation governance takes a system-level approach

TL; DR

Innovation governance, especially for transformational work, must always happen with a system-level mindset.

But doing so is frustratingly tricky because innovation governance comes with unique demands. It does not follow the best methods with which executives may be familiar from leading work in other functions.

Here, Nesta's history of the energy in Britain offers five lessons in system-level governance for innovation leaders:

1. Innovation takes momentum, not just resources
2. Innovation takes system-level thinking, not a straight, "simple, inevitable path"
3. Innovation jumps use cases
4. Innovation systems shift the geography of power
5. Available resources must be used. But having too many available resources is bad too

The story

Nesta is one of my favorite sources of inspiration for innovation work. I highly recommend signing up for the their newsletter, the "Nesta edit" (see bottom of their webpage).

If you live outside the UK and have not heard of them, do yourself the favor of checking them out. Nesta is "the UK's innovation agency for social good" and focuses on missions related to "a fairer start," "a healthy life," and "a sustainable future." Their work is always thought-provoking and well-researched.

Nesta's Andrew Sissons and Anton Howes just published a quick and nicely readable history of the evolution of energy in the UK, with extensions to broader Europe. In the process, their feature piece showed what the history of energy may tell us about the coming age of renewables.

Sissons and Howes sketch a timeline from pre-industrial England, via the rise of coal and its related industries (think the steam engine), and to today's incoming renewable industries.

The essay also offers fresh and interesting stories for U.S.-based readers, showing other aspects of the energy evolution than the oil- and gas-related case studies about which we tend to hear more often in the U.S..

[Source: Nesta]

The point for doing credible innovation work

As mentioned, Nesta's history of the energy in Britain offers five lessons in system-level governance for innovation leaders.

By the way, when I say "system-level," you can definitely approach the issue using the formal theories and toolkits of systems theory or systems thinking. But you can also simply use common sense by considering: "As a leader, what must I consider if my work messes with a stable human system?"

Let's touch on each lesson in turn:

Innovation takes momentum, not just resources

The availability of energy (or budgets, people, capabilities, and other resources) does not give you innovation by itself. E.g., in the case of energy in Britain,

"[t]he people of pre-industrial Tyneside [, where coal may have been extracted since 800 CE,] did not one day discover an abundance of coal in the ground and decide to start an industrial revolution. In fact, coal was, for centuries, known about but barely used. Nor did early factories all immediately switch to steam power after Watt developed his steam engine. The transition to coal happened in many phases, relied on various inventions and economic changes, and featured interactions between many different energy sources besides coal"

For innovation leaders, this means that we must study the forces that accelerate or slow down the adoption of innovations, either directly or via a series of seemingly-unrelated steps.

Innovation takes system-level thinking, not a straight, "simple, inevitable path"

The British coal industry, for example, got an early boost when Londoners adapted their fireplaces to be able to burn coal. That demand supported not only coal mining but also to the transportation that brought coal to London. In turn, this logistics infrastructure and related supporting businesses were critical for expanding shipments when more coal became needed to exploit the potential of the steam engine and industries for salt, soap, gunpowder, and more:

"Without this continually increasing demand, Britain’s eighteenth century growth might have gone the way of the Dutch Republic in the previous century, where stalling demand led to abandoned energy infrastructure."

You must not under any circumstances force major innovation into a simple, linear "stage gate process." Systems are not simple, linear, straight, inevitable, or anything else that would be nice and convenient for executives but happens to have no relation to the real world. You'll need a custom governance process, matched to the specific situation.

(I'll have a lot more to say about such custom processes. Luckily, we can rely on a ton of rigorous research to design governance approaches that can work. More to come.)

Innovation jumps use cases

As you may have already noticed in (2) above, the early adopters of coal in Britain were households. Industrial use cases only came later. We may do our best to identify "ideal customer profiles" (ICPs, aka lead users, extreme users, etc.). But any one kind of user is not enough. And our company's focus, too, may need to be broad to deal with the range of use cases that actually emerge as the innovation moves up the adoption curve.

For innovation leaders, this makes portfolio and project governance much harder. As executives, we want to preserve the focus on our mission, on priorities, on aligned decisions. Ah, but again, the real world just doesn't care what happens in some office tower of some city somewhere in the world. So you have a choice: Do you want the revenue and profits that come with your innovations, or don't you? If you want to capture them, you may have to expand, reframe, or pause focus on your mission, at least for a bit. You will be able to draw connections again later. But too excessive of "focus on our core" can prevent you from ever benefitting from the opportunities you unearthed.

Innovation systems shift the geography of power

In the case of coal, this new energy source turned backwaters like Yekaterinburg, Russia and Manchester, England into major metropoles. Today's renewable energy is more evenly distributed around the UK. But even then, solar power tends to come from the South West of England, while wind energy is especially common in Scotland and on the UK's East coast.

For executives leading innovation, this means you have to be highly proactive in understanding and navigating the flow of power in your organization and between your organization and its external stakeholders. People don't take it lightly when some new innovation reduces their power, pay, or prestige. You'll need to fight to keep your work from getting sucked into a black hole of political power struggles.

Available resources must be used. But having too many available resources is bad too

Abundant energy helped to raise living standards massively in Britain. But it also contributed to climate change (on a macro scale) and availability of cheap calories from industrially-produced food and the related health issues.

For innovation leaders, this implies that we must drip-feed budgets carefully. Too little, and the work can never take off. Your team will spend too much time working slowly and sub-optimally because of your stinginess. But offer too much, and the money gets wasted or, worse, used to create the illusion of traction where there is none. Traditional investment metrics like IRR and ROIC tend to be terrible at supplying healthy amounts of budget. But luckily other, equally rigorous financial approaches make team funding much more simple, actionable, and healthy. (I'll have lots more to write about that topic too.)

T.I.S.C.

Footnotes

Find the full story here (External link)

Sissons, Andrew, and Anton Howes. "What the history of energy tells us about the age of renewables." (Oct 24, 2023). Nesta. Accessed Nov 6, 2023.

Organization(s) involved (External link)

Nesta

Further reading

Anton Howes' background essay with more "Lessons from the age of coal" (Oct. 2023)

Credits

"Time lapse photography of square containers at night" photo by Federico Beccari on Unsplash

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