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The Innovation Stack
Finding alignment from 2 inches to 10,000 feet
Ten thousand and two is all about the different levels at which innovation and strategy need to be considered and implemented in order to be successful, valuable and sustainable. In this article, Toby pulls apart those different levels, and shows how you need to imagine it’s like a piece of vintage candy to make it rock - TG
I hate that I have used the word “stack”, it’s like calling any meeting a “stand up” or a contained piece of work “a sprint”, so much jargon, so little time to plough through it, but that’s another story. Here though, it is exactly the right word as it suggests something thought through not just a pile. It is something organised intentionally in a particular fashion, a meaningful layering.
And this is exactly how I believe innovation should be thought of. It is a layering of elements from the micro to the macro that line up in a particular order, need consideration as a whole thing, and need to fit “just so”. I see it as a stack because each layer needs to be considered, where a great innovation seeks harmony and alignment right through the stack. The harmony means the full potential of the innovation is reached, and when you can’t get full alignment you know where and why, and ideally this is a thought through investment choice, I’ll get to that later.
To put it simply, sorting out your stack is how you get the most value out of your innovations.
This represents all the big shifts and movements in the world you see around you. This is a mix of technological change, consumer patterns and socio-demographic shifts. The crashing together of these different elements creates the rich mix of the future. This mix also creates the backdrop for the business you are in, shapes the areas of success and highlights the opportunities.
The world happens here so it needs to be in your field of vision. Not all of it, not all of the time, but enough to be able to pick out shifts you can imagine rippling through to your space.
This is your immediate space, where the mix of actors, competitors, providers, customers and consumers play out that directly and indirectly influence your business. Changes in the relative dynamics influence the ecosystem, but you need a healthy ecosystem to survive as much as you need a healthy business. For example Ford is in a mobility ecosystem, the shift from petrol to electricity changes many of the actors and is clearly changing the earlier configuration of the ecosystem, around the internal combustion engine. Ford can, and is choosing to shift its ecosystem and is investing and building out a very different sort of business. The ecosystem is where you spot the problems worth solving.
Your offer is where you directly seek to play in the ecosystem and benefit from its health. A great innovation has decoded a set of under-served needs that are either emergent (they weren’t expressed in the same way historically, think Electric Vehicles 15 years ago) or a new technology has opened up new possibilities. By spotting the shifts in the ecosystem you ride an emerging wave of demand and can influence the shape and healthiness of the ecosystem, as well as cementing your role in it.
Your business model
Your business model is how you ensure the offer gets delivered at high fidelity, to meet the promise for customers (form, price, place, etc.) and delivers your business a sustainable growth. The offer drives revenue, the business model, the margin. The business model marries the ecosystem (the outside) with your internal operating model (the inside). Without getting too reflective on this (something to talk about in another article), the business model is often the stumbling block. It is the least visible element to a company because they have probably lived in the same business model since forever. It becomes to all intents, like wallpaper, something that is there but not recognised. That said it is the critical connecting piece that ensures longevity.
Your operating model
This is the guts of the business, the moving parts that make the business function with clarity of roles, processes, ways of working, and critically, the underlying culture of the business. This is where the everyday alignment and efficiencies sit, where the business model gets refined and optimised.
Your people, you
The individuals in a business need a set of skills, a mindset and an engagement with the broader sense of the business to be able to more than functioning elements, and actually create, imagine, deliver. This means working to define these, as well as define how individuals contribute to and make richer the whole. A theme I will return to in later posts, is that you need real people, not those professionals who are steeped in process, KPIs, roles, hierarchies.
The logic of alignment
Alignment is when each element sits comfortably with its neighbours. Like a stick of rock (strange old fashioned UK sweet found at the seaside, which has the same lettering all the way through) you can see the same logic at each layer.
The impact is that a business gets
A compound impact as the effort and design of each layer fully impacts the layers above and below. The tighter the alignment the more value is directly created through the stack
Time and resources are not wasted in carrying out activities that are not aligned to the broader framework of intent. This doesn’t mean the business doesn’t look or engage with other paths, it just means those paths are sources of insight and reflection against the core purpose.
People within the business who can draw a line of sight between what they do and the broader context. This allows them both to actively engage in reflecting, gathering insight and giving the company eyes and ears, and gives them awareness of how they can evolve their own role and skills.
Customer engagement at any level is fully consistent whether it be first awareness right through to customer support. This gives enormous trust to the customer in what they are buying into, positively impacting likely engagement and lifetime value, as well as higher likelihood to tell others.
This is not an obvious business route since it is much more intuition and feel than metrics. It falls into that Supreme Court Justice Potter Stewart reflection on pornography “I know it when I see it”. With that vague framing is it really a thing you can build for? Does it exist in the real world?
Octopus Energy as an example
Octopus Energy is one of my favourite companies, not least because it is such a thoughtful, clear business response to a real need, and designed with deep reflection. Check out their podcasts which give a really good in-depth understanding of the moving parts. It is such a good example of a business designed through the stack so absolutely everything lines up.
World and ecosystems
Octopus Energy sits in the future of energy, designed and invested in bringing a sustainable response to the energy problem (Greg Jackson, CEO, states their purpose as “putting a big green dent in the world”) the same time as passing as much of that value on to consumers as they can. From a clear read of the future Octopus, they are an ongoing active voice in influencing the government in that future, shaping what they see as the most equitable and highest impact ecosystem of energy.
This also turns up in their investments in sustainable energy, as well as their partnerships, including their tie up with Tesla power wall to provide home energy storage. Their offers were the first to integrate a proper view of customer need (vs just selling energy) with targeted offers to EV owners, and the implementation of plunge pricing with smart meters.
Business model/operating model
They built their own software, Kraken, to ensure a total alignment of the flow of information and customer experience with their own business, and aligned this with their culture, the organisation design and the business purpose. This is such a tight, connected design that it feels impossible to decouple any part, which makes it such a compounding competitive advantage. They licence out the whole model to other energy companies around the world to get to their target of 100 million green customers , so the UK energy generator/ retailer is part business, part proof of concept for a replicable business model around the globe.
The role and importance they give their people is reflected in what employees say about them and the work environment as well as the CEO’s obvious humility. This quality of thinking right down to the individual level is nowhere more emphasised in how Greg Jackson talks about their “dry stone wall” organisation (check it out here, it is just great thinking about people), where they look for the unique fit between the whole person and the role, not seek to make the perfect brick for the corporate wall, by force fitting people into roles.
This isn’t a walk in the park
Getting alignment through the stack is a sweaty joined up reflection, it requires a lot of the “ten thousand feet and two inches” thinking we kicked this thing off with. It is not classic consulting “best practices” mash up where I fix bits and hope it all joins up. This requires a business to think about what it has from top to bottom to work out how things could line up. It requires hard work, heavy lifting and challenging reflections.
Without getting into a falsely confident blueprint of how you might think about an innovation stack , a few thoughts about adapting
Figure out “What’s going on?”
To borrow from Richard Rumelt’s most excellent book “Good Strategy, Bad Strategy” you need to figure out “what’s going on” before anything. So what are the shifts you are seeing and anticipating, and what are the impacts on the ecosystem. This is definitely sweaty and can feel both slow and prosaic.
My hunch is that when businesses first go on this journey (i.e. the start up to working business model) they intuitively or actively (think Octopus Energy) think about this alignment. It is intuitive because the beginning point of any start-up is spotting a problem. This takes care of layers one and two, then you propose an offer and how to deliver (3 & 4), and the internal parts are either emergent, or often self-serve through alignment of purpose.
For existing businesses this happened probably decades ago and all that thinking has been translated into standard operating practices, competitors forever faced off against and customer needs anchored in some misty past.
This is where the initial “What’s going on?” is so important. This question is a mix of the more evident outside view, so understanding trends and working out just what your ecosystem is, and then turning inwards and figuring out what the alignment (or not) is internally, perhaps through an exercise of culture, or skills or operating model type reflection. What doesn’t seem to happen (unlike the startup version) is that these are joined up to work out what the current stack actually looks like and how well it is adapting.
This is a pattern recognition exercise
This is a soft focus activity, it needs the brain to lose focus on the specific facts and allow time to join up the information and insight at different altitudes. It isn’t going to pop out of a heavy analysis deck, it is going to be the mix of all the things in the stack. Some big picture, some analysis, some customer insight, some reflections on culture and what you imagine people will actually be doing.
The seductive danger of innovation is people think it is all about ideas. Probably about 80% of the client work I have been involved in seeks to reduce the discovery/what’s going on time and big up the having ideas bit. My view (helpfully fed by Einstein so I feel I have a good backer) is that 80% of the time spent working out the right problem is about right, and once you have that, 20% is enough to get to the right answer.
The answer isn’t (always) the shiniest thing
The danger of customer centricity is that it leads you to the easily found thing the customer wants. As Mark Payne, most excellent thinker and co-founder of Fahrenheit 212 once said, “Design thinking is 100% of the answer to 50% of the problem”. For any business there is a subset of things that the business can reasonably win at because of a unique combination of assets (IP, things, skills, relationships, etc). This means constantly bouncing up and down the stack to find that fit, rather than only looking at the outside world.
This means you need a dual lens, where you match possible needs to unique ability. One answer (the outside in) will be full of newness and growth and excitement, because the customer need is so obvious. But it comes with such a destabilisation of the stack that it is riddled with uncertainty and cost of change. At the other extreme will be a more prosaic and less promising outcome, which takes the business down a different path built on what the company already knows how to do.
The answer invariably lies somewhere in between where customer need meets unique ability to solve. It just needs the business to recognise the tensions, take a view on where value and uncertainty sit and make a strategic choice.
The notion of an innovation stack can seem a slightly slippery concept since it anchors in a sense of alignment rather than a coefficient of measurable alignment. Yet I believe people intrinsically feel the alignment, like watching a well crafted film or a piece of music. It isn’t turned into some metric, it is recognised and appreciated.
In the start-up world, which is rich in metrics, this notion of alignment is most obvious where successful start-ups tell stories that hang together, they feel tight. A start up has to have alignment to both spot the need ahead of others, and anchor it in the moat they then create. An existing business doesn’t have the immediacy of the fit, since the answer it solved for was years or decades ago. It needs to be conscious of the feel for fit, have an ability to shift between the 10,000 feet and 2 inches. Businesses must not be distracted by any false promise of “what gets measured gets managed”, but rather recognise that some of the most important things in life and business are not measurable.
To me, the interesting reflection on this is thinking about how the alignment across the stack changes and flexes over time. As Toby says, successful start-ups will intuitively find the alignment from macro environment through to ops, business model and people. But as they grow changes will start to occur both in the macro, external environment and internally in how the company operates, who the people are and how they work together. With this in mind, perhaps the stick of rock metaphor isn’t quite right - anyone who’s made the mistake of actually trying to eat one will know that it’s liable to shatter when stressed - it’s impossible to remould it once it’s made. I’d suggest that a better metaphor for the stack and how to align it is to imagine it as a layer cake or a stake of pancakes - where a perfectly aligned innovation is a cake that’s beautifully stacked and symmetrical - each layer aligns with the last. As time passes and things change, those layers may start to slip - the cake will probably hold up for a while, but without some thought and effort to realign, it will ultimately collapse.
This is the real challenge for established businesses grappling with innovation - to what extent should you try to realign the current cake and all of the messiness that it involves, versus working on a new cake? Food for thought. 🍰🥞 - TG
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