Tuesday, October 07, 2003

The Sincerest Form of Flattery:
3 Knowns of Innovation - Part I  

Innovation is a process that turns surprises into (generally) unknowable trends. There are three "knowns" though. Thanks to Baseball Primer, I read a recent Cincy Enquirer story about the Reds' future direction that illustrates all three clearly, and that makes it easy to understand the knowns in a non-baseball context.

Knowable #1: Success With Innovation Triggers Imitation

The top grafs of the story read thusly:

When Reds chief operating officer John Allen said this week that one of the main criteria for hiring the next Reds general manager would be to find the person who can find "baseball players," he was speaking in code.

And the "code" can be broken by anybody who has read the best-selling book Moneyball about the Oakland A's methodology for winning games with a comparatively small payroll. Allen is looking for a general manager capable of applying the Oakland A's and Minnesota Twins models of being able to do more (i.e. win) with less (i.e. a bottom-quartile payroll).

The Reds, an organization with some noteworthy strengths, are allegedly planning to imitate two successful peers who each have a strongly-defined strategic plan.

It helps that A's G.M. Billy Beane laid out in fine detail the A's approach to author Michael Lewis who turned it into a popular, readable book in Moneyball. The Twins approach, just as consistent, is actually quite different, and seems simpler and less elaborated. The Twins approach is focused on developing players internally for the roster and for trade, and they generally take a mainstream, baseball approach to talent evaluation. As you know if you're plugged in to the A's or the fizz around Moneyball, the A's seek players with very specific skills generally undervalued by mainstream baseball.

And there's a rub for the A's and Reds, too, if they start chasing the same players the A's are. It doubles the demand without significantly affecting supply. Success, in the form of the A's cost-effective, consistent winning record, is imitated and imitation undermines the supply-to-demand ratio of the resources that make the innovation succeed.

Outside of baseball, this happens, too. Militaries defeated by new weapons or tactics always try to acquire those weapons and learn those tactics, driving up the cost of the weapons. Governments that discover they can attract jobs with giant tax breaks soon attract rivals that get them involved in bidding wars. Businesses that observe a hot new high-margin niche stampede into it and trample the very factors (supply-to-demand) that makes it possible for it to have a high-margin.

The 90s were a period in business and government where "first to market" had an almost religious cachet...whoever got there first "son". It's not always true. The other side, "Pioneers Catch Arrows", Microsoft's strategy, has been successful, too...let other companies open up markets, and then when proven, go into with lessons-learned about features and pricing and consumers' willingness to gut out bugs. The benefit of imitiation is lower research expenses, because innovation can be expensive in money and human effort.

But following the innovations of others is no cure-all. You have to understand their context, and be able to execute on them. In the case of the Reds (and many non-baseball organizations) there have to be enough undervalued resources to go around.

The very act of success draws imitators, which undermines some of the factors that brought the success in the first place.

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