Monday, January 10, 2011

Innovation vs. Efficiency

The description of a proposed "efficiency innovation" has stuck in my craw - or more aptly, the description of an "innovative" idea that achieved greater operational efficiency rubbed me the wrong way, and biting my tongue to hold back the objection ("That's not innovative at all") has led me with a need to explore the conflict in the relatively safe environment of my notebook. And so ...

It seems to me that an "efficiency innovation" is a contradiction-in-terms. Efficiency is one thing, innovation another, and while they are not polar opposites, they are dissimilar enough that it would be extremely rare for a given proposal to be both an innovation and an improvement in efficiency.

To begin with core definitions: innovation seeks to create something that's altogether new, whereas efficiency seeks to streamline new processes - that is, efficiency seeks to reduce the costs of production, or to increase the output of production without incurring additional costs. In effect, efficiency does not create anything new.

As such, it seems to me that the creation of the new is the touchstone for determining whether a proposal is "innovative." If a proposed idea changes the task to produce more output with less effort (by reducing the number of employees, making existing employees more productive, gets customers to buy more of the same product, etc.), it will likely be a good idea, and potentially quite profitable, but it is not an innovation.

Both efficiency and innovation can lead to organizational growth - but again, it's not the phenomenon of growth, but the means by which growth is achieved, that differentiates efficiency from innovation. Specifically, growth as a result of innovation creates new products, new customers, new processes, and/or new positions (there may be other factors I am overlooking) - the organization "grows" by means of doing something it has not done in the past. Growth in an efficient organization occurs only from growth in existing markets, by adding people who do more of the same: if an idea results in selling more widgets, growth occurs when another production line or factory is added to handle the increased demand - but such growth is essentially replicating existing positions and processes to handle higher volume.

More so than their ultimate impact upon an organization, innovation and efficiency are distinguished by the way in which changes to the organization are conceived. Efficiency looks at history (what have we done in the past, and how can we do more with less?) whereas innovation looks to the future (what are we not doing now, that we could be doing?). As such, an efficient idea can be mathematically derived from historical data (a production ratio of X widgets per hours at a cost of Y dollars based on last month's figures); whereas innovation must be a complete supposition (there is no past data that can be used to project a future state).

As such, organizations tend to favor efficiency over innovation, because efficiency can be said to derive from "real" numbers and a more reliable method of projecting the future, while innovation does not yield to the same method of proof: innovation is based entirely on supposition with a lack of "hard evidence," and is therefore seen as being more risky and less dependable.

(I could go off on a tangent about how an innovator can struggle to produce historical proof, based on similar phenomena, but that is a very bad practice born of desperation to gain acceptance for innovation in a culture of efficiency, which is an entirely separate rant. I'll choke that back for now.)

This returns again to the notion of "the new." To come up with an idea to improve efficiency, one does not necessarily need to look outside the organization: merely consider existing operations to find an opportunity to streamline (cut costs, improve output). In some instances, it is possible to seek efficiency by looking outside the organization - chiefly for marketing efficiencies that seek to sell existing products to different markets, or get existing customers to purchase in greater quantity. It could be argued that this is "innovation" because it deals with "new" customers or "new" uses of an old product - but that seems to rather cheapen the definition of novelty.

The point I working toward is that to come up with an innovative idea, you must look outside the realm of what presently exists. Existing products or customers may be the place where the seed of an innovation can be identified, but an innovative idea very quickly leaves the real of what is familiar to explore notions that are "new" and have little correlation to the routines of existing operations and the parameters of existing relationships with external parties. The innovator must conceive of "that which could be" with very little assistance from "that which already is."

And to return to the implied thesis of the present rant: is it possible for an idea to be rightly called an "efficiency innovation" given the stark contract between efficiency and innovation? I am reluctant to say that such a thing is impossible, but only because those who say things such as "impossible" and "never" are often embarrassed by reality. And so, while I concede that it might be possible, I must state that I have never heard of such a thing, nor am I able to imagine a scenario that fits the bill.

Clarification

It occurs to me that contrasting two notions often leads to the sense that one is being extolled and the other denigrated - in this case, that "innovation" is good and "efficiency" is bad. To be clear: it's not my intention to create or give credence to such a notion. Both efficiency and innovation are valuable, and an organization must seek both innovation (to discover ideas for new operations) and efficiency (to be profitable in present operations) in order to have long-term success. Specifically, I am not saying efficiency is bad - but merely that efficiency is not innovative.

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