“What is Innovation? Innovation effectively is the process of technological change. That’s easy to say but the first thing to really understand is that innovation is a process not a thing. The thing, the outcome of innovation, is the invention.”
PART 1 – Insights on Innovation
INTERVIEW with James Chin Moody
Samuel Tait for I/O
Innovation Theory is a unique field of study so we reached out to James Chin Moody who turned his PhD in innovation theory into a book titled The Sixth Wave. He has previously worked as a satellite systems engineer, was Executive Director of Development for the CSIRO and has been a regular panelist on ABC TV’s The New Inventors. In the last couple of years he has become a serial entrepreneur using his research as a foundation to develop innovative and disruptive businesses. His most recent venture is Sendle, a start-up business disrupting traditional parcel post by providing door-to-door delivery at post office prices.
I/O: You have a PhD in innovation theory – how did this come about?
James Chin Moody: I’m originally an electrical engineer with an IT degree. However I started my career building a satellite. I was the Chief Systems Engineer for what was at the time Australia’s first satellite in 30 years, FedSat.
While I was doing that we were located at ANU, and I had always wanted to do a PhD. I talked to the management school. They said, “Well you know what? What you are doing with Satellite construction is really interesting because it’s starting to get to the heart of this idea of how to innovate in Large Technical Systems. We’ve got this particular area of research that is all about innovation theory, would you be interested in doing a PhD in that – focusing on effective systems of innovation?” That’s how I started my PhD in Innovation Theory – I was very fortunate.
I/O: How does an innovation theorist define innovation?
JCM: It’s an interesting question. What is Innovation? Innovation effectively is the process of technological change. That’s easy to say but the first thing to really understand is that innovation is a process not a thing. The thing, the outcome of innovation, is the invention. For example I can point to a smartphone and say, “That’s a nice invention,” but the process of innovation is coming up with it, and then making it, selling it, getting someone to use it and so on. Innovation involves all of these things. Therefore it’s not just about science and technology. Innovation is deeply associated with business processes, business models and all the different aspects that combine towards getting a new product to market.
So when you really pull it apart, we see innovation as the process of technological change. And there is only 3 things that really cause technological change:
- One is a change in technology, which is a bit of an axiom. For example it’s how they came up with a mobile phone when there was never a mobile phone before. Before I had to have a cable to make a phone call, now I don’t have to have a cable. Mobile phones happened because a change in technology enabled it.
- The second way which is a change in the market. Take the mobile phone example again. We had Short Message Service, or SMS, available on a mobile phone for years before people started to use it. But eventually people realised that they sometimes wanted to do “asynchronous communication”, or texting, rather than “synchronous communication” or phone calls. That it was actually quite useful to be able to send a text to somebody and they didn’t have to be on the other end of the phone at that exact time like a phone call. That was a market shift. The technology was already there but it took a change in the market for change to happen – the market need suddenly emerged.
- The third area, and this is where most innovation theory actually ends up, is around changes in what are called ‘institutions’. Institutions are the the stuff in the middle between technology and market. It’s the ways in which technology gets to market, or the way in which markets send signals back to businesses around which technologies are successful or in demand. These institutions are not your bricks and mortar institutions. These institutions are structures within which we operate. It’s things like business models, legal frameworks, and regulatory environment. These things end up being much more fundamental you might say in terms of technological change, than necessarily changes in technology or changes in the marketplace.
These critical institutions become either enablers or hinderers of the process of technological change. Businesses, for example, might suddenly say, like IBM did, “We’re no longer going to be in manufacturing products, we’re going to deliver services.” This causes massive changes to the business and how it operates. For example which markets are they going to address? What changes in technology are they going to need or develop to make this transition? This gets to the heart of what the innovation space actually is.
I/O: What is the role of disruption in innovation theory?
JCM: Since the industrial revolution we’ve had 5 major periods, what we call long waves of innovation. They’re around about 35/40 years in length. They start with a lot of disruption and new business and technologies emerge. Then things start to converge around what are called dominant designs. Microsoft Windows or AC power or the Motor Car are examples of dominant designs. And in the end, each wave ends in an economic depression.
That’s the chain we’ve seen for the last 200 years. First we had milling, then steam, electrification, mass production, and the 5th wave has been driven by Information and Communications Technologies, or ICT. At the start of a cycle you see lots of disruption, lots of new business models being created at the beginning, then coalescing around the dominant designs.
IBM and GE are interesting examples because they have been so successful in surfing these waves. Often companies don’t manage to survive more than one or two cycles. Again if they’re not nimble enough, what happens is that their business gets disrupted – every business has got a different business model and many of them will be disrupted – just like now with what Uber is doing to the taxi industry – this is just one example.
The fourth wave was all about mass production, global supply chains connecting. Again your business model had to change or it was disrupted. These waves of innovation are basically a coming together of massive changes in technology, plus massive institutional shifts, plus massive new markets being created. Generally what’s happening is we are now able to capture a source of value in ways that we have not been able to before. With electrification we were able to help people work longer and so on enabling mass production. It improved the efficiency of global supply chains. Information technology has effectively reduced transaction costs.
Most of the story of the last 5 waves has generally been around de-coupling economic growth and labor, so we saw massive changes in labor productivity.
I/O: How did you develop the value proposition for Sendle?
JCM: One of the things that we saw and lead to our first business called TuShare, was that there were all these idle assets in people’s homes and that if you could get them to somebody else, and they would have new value. If we could just get an item from somebody who didn’t need it to somebody who did, you create value.
You could look at it like an online swap-meet and this really lead us to create Sendle. What we realized is what problem really does the swap-meet really solve? It solves the logistics. Everybody’s bringing their stuff to the one place but if you wanted to do that in a distributive way and make it efficient and scalable you couldn’t.
We said for TuShare to be successful we needed a really good logistics solution for the future. What was out there at the moment wasn’t quite really suitable because firstly we realized it had to be door-to-door. If you’re expecting people to line up at a Post Office or line up anywhere they’re just not going to do it – so it had to be door-to-door. Everything had to be tracked because we actually care about that stuff. It had to be extremely affordable for big weights. And people didn’t want to have to think about volumes and weights.
We set ourselves the idea of shipping hand luggage around, so our target was to get cost effective delivery of 10kg and 40L, the size of hand luggage. We were very fortunate that we actually started working with courier companies and we realized that they too had an opportunity which was that they have a lot of idle assets of their own which comes from delivering lots of stuff to suburbs however the trucks are going back to the depot empty. If we could start to fill those trucks, with stuff going from home to home, we have a consumer-to-consumer proposition that could get good rates and do it cost-effectively. We can now deliver 10kg in the same city door-to-door often on the same day for less than 10 dollars. And we can get 10kg anywhere in the country for $17.60.
I/O: What is the role of innovation in a start-up business?
JCM: I think innovation for a startup is quite different than in large companies. In start-ups we think of the world in terms of 2 things, 1) product and 2) traction. In fact those are 2 loops if you can imagine it. There’s a product loop, sometimes that’s called “Lean” or “Minimum Viable Product (MVP)” or whatever it might be but you have to have a product in market. You know your product and you develop it iteratively based on feedback. That’s the first loop. There are lots of things that happen within that loop.
Then there is this other loop that I’m really fascinated with. There’s a book called Traction that talks about it in depth. It’s great because it really points out that you can do the same thing with your marketing and iteratively develop it. You’re doing exactly what you did in the product loop – except for marketing. For example you choose 2 or 3 channels – probably not more than 2 if you can help it. Then test those channels to see if they work. These channels can be a number of things like Search, PR, trade shows. The book points out that there are about 19 of them. Choose a couple. Make sure it’s measureable. See if a traction channel works. If one does start working then you double down, and you double down and get better and more sophisticated in that traction channel.
The added value is that your traction channel might feedback information about your products so those 2 loops start to coalesce, there’s a space you get to where they start to impact each other. So product and traction become really important for us. That’s innovation in a startup context. It’s largely, for us, some big bets that we’re making around our business model, and then we are iterating around those big bets.
I/O: What is the biggest challenge you are tackling at the moment?
JCM: I think for us the biggest issue is making sure that we’re growing in a balanced way. Growing so that you can support increased demand. At the moment we are getting some awesome demand because we think we have a product that’s priced in the right space and offers a real benefit. It’s quite fascinating. It’s a very tangible benefit as we are putting 10-20 minutes back in your life.
From a growth perspective it is making sure that as we grow, we’re growing the support services at the same time. That we are growing our software capability at the same time. That we’re able to give the level of due diligence that we want to our own people and to our customers’ experiences.
I/O: What is your viewpoint on the role of the customer in product development?
JCM: We spent, and still spend, a lot of time understanding consumer issues. The service we built was one that was really beautiful for peer-to-peer marketplaces but not necessarily for a couple of other ones. Our process was to understand the pain points of the consumers and working out how we can apply technology to solve them which is why for example with Sendle we’ve just gone for flat pricing. Believe it or not pricing is a major pain point. If you were to walk into the Post Office, and like most people, you have no idea whether a package is going to cost $10 or $50. It’s a pain point that we wanted to solve.
I/O: What is your experience of strategy and design in product development?
JCM: Strategy is what you don’t do. Most strategy is actually trying to choose what to do, while real strategy is choosing what not to do. It’s easy to do more. It’s hard to do less. Previously I think it was okay to have an 80% developed product, which was addressing 100% of the market. What we’re seeing now is you need to have a 100% developed product that probably can only address 80% of the market, but you’ve got to make it a beautiful experience to succeed.
Take Uber – it’s a beautiful solution from a User Experience viewpoint but you can’t book a baby seat, you can’t pre-book a car for tomorrow. They provide a great experience – the booking of the car but only from the place that you are currently in. Uber is effectively trading off chunks of the market in exchange for a simpler, more beautiful solution. What that also means is that the relationship between marketing and product become very close. This means that marketing has to be involved very early in the process. Marketing becomes an essential part of the design process, in fact often at the beginning.
I/O: What companies do you most admire for their approach to innovation?
- AirBnB is really interesting in the way they are looking at their new re-brand, looking at the way they’re trying to build a purpose within the community, so it’s not just a product. I think they’re really fascinating.
- Apple is definitely up there in terms of reducing friction, they’ve taught everybody else how to do it. They really showed everyone how it’s done, removing friction deeply.
- Also Canva and the way that they’re really embracing cloud. They’re an Australian company who’s taking on a global market.
—END Part 1 – Insights on Innovation—
Watch out for the second part of our interview with James Chin Moody in the next fortnight. Part two on operations of innovation will cover execution and how he has used the research to build start-up businesses, measuring success, managing culture, how they use external expertise and some of his biggest lessons learned in creating disruptive businesses.