Why Bottom-Up Innovation Matters

Filed Under Innovation

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James Gardner

by
March 11, 2014

Bottom-up innovation is often dismissed by innovation consultants and theorists as being mainly incremental, and therefore strategically uninteresting.

Why have your front line employee suggest some minor change to a process when you can spend your time designing a strategic new product or service that’s material to the top line of your organization?

But for many companies, this is a demonstrably failing strategy. How else do you account for the massive failure rate of new product introductions?

A Chance for Success

For every 4 projects that enter development, only 1 makes it to the market. At launch, at least 1 of 3 products fail despite deep research and planning. And its been estimated that 46% of all resources allocated to development and commercialization by US firms is spent on products that are cancelled or yield a completely inadequate financial return (from: Winning at New Products 4th Edition, Cooper, 2011, p9).

Now, individual bottom-up innovations may not have a much better chance of success, and according to some sources, are actually more prone to failure than big strategic initiatives (see here).

But the point, in the case of bottom up, is not the failure rate, but the volume of changes you get.

You see, if you focus on 4 big strategic changes, and 75% fail, you’re left with one big change, and it has to cover the costs of 3 big investments that went nowhere. Usually, big, strategic level initiatives are expensive, so you don’t really want a failure. Or three. They’re also embarrassing. Possibly career ending.

[Seventy-five] little failures are less difficult to explain, particularly if you have 25 pretty good successes to offset them. And anyway, it might not matter how many failures you have, because the blame is diffused across a far larger number of stakeholders, and is therefore less damaging to anyone in particular.

Financiers would call this sensible management of risk concentration, even if their recent history has not necessarily proven them to practice much of what they preach. Failure rates and economic rationale aside, I think there is another reason bottom-up innovation represents the next big wave of value creation.

An Intrinsic Reward

Bottom-up’s driving dynamic is hyperlocalism: they are innovations personally interesting to those who propose and implement them, and therefore, innovators have a personal stake in making sure things work, regardless of any extrinsic reward that might achieve by doing so.

For bottom up innovation, in fact, almost the entire reward for participation is actually intrinsic. Apparently, you don’t need a big chunk of money to get people to do great things.

That’s why extraordinary movements like the Honey Bee network and Grameen Bank are able to make a world changing difference, one tiny step at a time. Even in situations of abject poverty where no money is available to bribe people in the first place.

The question is this: how can corporations make use of the hyperlocalism dynamic that drives bottom-up innovation to get big outcomes?

The answer to this question, clearly, must come from the emerging science of crowd behaviour and, in particular, our increasing understanding of the ways that emergence and path dependence work in the innovation system context.

It may be that innovation systems of the bottom-up kind exhibit the same kinds of dynamics that other complex systems do in seemingly unrelated domains such as sociology, biology and physics. Some authors have even extended complexity systems metaphors directly to the innovation space (see, for example, the Innovation Butterfly, a specific instance of the “Butterfly Effect” known from complexity and chaos theory).

A complex systems approach to innovation is a cornerstone of an emerging science of innovation I previously called Innovation 2.0 a few weeks ago.

It is an exciting frontier which will likely be the subject of many — probably most — of my posts in the near term.

This post was originally published on Innovator Inside. View the original article here.

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