Innovation's Organizing Principles

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Organizing Principle #1, cont.

Comments -- The Fit of Innovation's Function, continued:

Innovation's function of resource leverage fits:


a. Within Commercial and Social Production Systems. Go back.


b. As a Complement to Science and Invention

The methodology of innovation and its function of resource leverage -- whether applied to the commercial or social production system -- relates as a complement to the methodologies of science and invention. All three methodologies aim at progress, and progress for each begins with a hypothesis that is based on an effective new connection of existing knowledge, categorized as “paradigmatic imagination”:

“the ability to see possible … connections before one is able to prove them in any way.” [7]

It is the direct function, or purpose, of the new connection of knowledge that represents the fundamental point of departure:

Innovation hypotheses are customer facing and often referred to as "problem finding" as opposed to problem solving. They involve new conceptions of offerings that are focused directly upon change in the domains of commercial and social transactions. If new knowledge or invention is involved, the innovation hypothesis translates it into impact in society or the economy based on customers' perception of expanded utility. Recent Procter & Gamble Chairman and CEO, A. G. Lafley, and co-author, Ram Charan, noted in Game Changer:

"The Japanese invented MP3 players in the early 1990s. But the Japanese had an invention, not an innovation." [7-1]

Hypotheses for science or invention could hold the explicit end purpose of advancing productivity via new value to customers; however, producing new knowledge or technical invention requires separate direct methodology (as does the production of innovation).

  • In Closing the Innovation Gap, Judy Estrin highlights the differing direct purposes of “basic research,” “development,” and “application,” arguing that each is distinctly necessary within a shared “innovation ecosystem.”[7-2] Estrin holds that the separate foci of these three complementary domains of practice all are necessary to the end result of innovation.

  • Similarly, Lafley and Charan emphasize intentional and interactive relations among the methodologies: "One of the most common reasons teams fall short is that they fail to design the business model at the same time they are creating the actual product or service." An invention shouldn't be passed "over the gate" to Marketing. [7-3]

Among the methodologies for science, invention, and innovation, both the shared feature of paradigmatic imagination and the point of departure of direct purpose seem quite meaningful. For example, Steven Johnson’s Where Good Ideas Come From: The Natural History of Innovation speaks to an observed pattern of conditions and practices associated with "good ideas":

  • All of the examples of good ideas in his book generated progress based on connecting existing knowledge to form a hypothesis.[9] They fit into what Bruner called paradigmatic imagination.

  • However, the examples were incorporated within methodologies that served differing direct purposes: Some ideas advanced knowledge (science), while other advanced technical capability (invention), and others advanced productivity directly (resource leverage, or “innovation”).

  • Johnson's observations about the historic pattern of dynamics that foster good ideas would seem to pertain to each methodology. But the perspective would fit into differing, methodology-specific organizing principles.


c. As a Function Shared with Entrepreneurship

Each of the labels, "innovation" and "entrepreneurship," has been noteworthy based on resource leverage as the standard of excellence. Also, for each label, the prominence of the connection to resource leverage has increased over time, with the two labels becoming more directly associated:

For Say, nearly two hundred years ago, with resource leverage as “the acme of industry,”[11] it was this standard of excellence for innovation and entrepreneurship alike that was noteworthy, even as Say applied the labels of innovation and entrepreneurship labels broadly – well short of this standard -- and separately.

A century later, economist Joseph Schumpeter, too, described entrepreneurship broadly -- as a “large genus” -- with “spectacular” advances in productivity (including “creative destruction") again as the noteworthy standard.[12] (Another of Schumpeter's ideas in this source was that failure of capitalism would be based on its success, including success's cultural effects of lessening inclination toward entrepreneurship. However, "creative destruction" is the concept that took hold.)

Drucker then, in 1985, argued for resource leverage as the basis for applying either label at all; the standard of excellence was the fundamental standard.

Plus, Drucker combined the two labels into a fluid, singular practice of "innovation and entrepreneurship," with innovation as the knowledge base of entrepreneurship:[14]

"The discipline of innovation (which is the knowledge base of entrepreneurship) is a diagnostic discipline." [13-1]

The theory underlying the practice of entrepreneurship is one that "sees the major task in society -- and especially in the economy -- as doing something different rather than doing better what is already being done."[13]

Even with resource leverage as the standard for applying the labels of innovation and entrepreneurship, for Drucker, the genus remains as large as ever. For example:

  • Drucker referred to innovation based on new knowledge or technology as the "cutting edge of the knife," with the greatest opportunity for innovation located at the blade, especially within existing large organizations, not at the cutting edge.
  • He pointed to the example of McDonald's as a noteworthy innovator. And his writing suggested that he would agree with Paul Krugman that initiatives like the standard shipping container most certainly represent innovation.

Moreover, the genus needs to be even larger:

  • Again, Drucker held that innovation and entrepreneurship is pertinent to all except "that which might be labeled existential rather than social."
  • Within a "post capitalist" society in which "knowledge is the only meaningful resource": "Every organization … will have to learn how to innovate – and to learn that innovation can and should be organized as a systematic process."[15]
  • Drucker's 1985 primer includes reference to "social innovation" ("changing people") throughout most chapters.
  • He suggested that there is particularly great opportunity and need for innovation and entrepreneurship within government.
  • And overall: "What we need is an entrepreneurial society."[16]

Today, within the body of work of thought leaders, the terms “innovation” and “entrepreneurship” tend to be used within the same context and almost interchangeably, or at least without a pattern of explicated distinction.

It may be that distinctions are assumed as obvious, or it may be that the shared standard, or function, of resource leverage has become much more important than distinctions between the two terms, as a knowledge-based economy relies on making knowledge productive.

It's not unusual to find modern thought leaders echoing views of Drucker. As but one example, Lafley and Charan emphasize not passing new technology "over the gate" to marketing (in a linear fashion), but rather collaborating early. Similarly, Judy Estrin emphasizes a shared ecosystem among: basic research, development, and application.

Moreover, at the level of fundamentals -- regarding the function of resource leverage -- tenets expressed by many present-day thought and action leaders (including Clayton Christensen, Steve Jobs, and A. G. Lafley) echo tenets expressed by Say, two centuries ago.


Overall, for this prototype, I chose the label “innovation” principles; however, “resource leverage” principles might be more precise.

Distinctions, or points of departure, between innovation and entrepreneurship may be important. However, I did not find an explicit theme of differentiation and did not attempt to create one.[15-2]


d. As the Subject of Intellectual Capital

The conceptualization,"intellectual capital," is linked directly to innovation's purpose of resource leverage, expressed by new products and services that are "of higher value than the ones they replace."

The conceptualization follows from the increasingly primary role of knowledge in generating resource leverage:

"The ability to leverage physical and financial assets is limited and getting more so. The ability to leverage knowledge capital is unlimited and getting less so."[16-1]

In Intellectual Capital, Thomas Stewart defined intellectual capital as "organized knowledge that can be used to produce wealth." Stewart conveyed a three-part classification based on "where to look" for this asset: in humans, structures, and customers ... and especially in the interplay among these sources.[16-2]

Human capital, represented by "the capabilities of the individuals required to provide solutions to customers," "matters because it is the source of innovation and renewal." [16-3]

Structural capital "packages human capital and permits it to be used again and again to create value."[16-4] Providing for "knowledge that doesn't go home at night," structural capital's structures organize and distribute strategically collected data for [16-5]:

  • rapid knowledge sharing
  • collective knowledge growth
  • shortened lead times
  • more productive people[16-6]

Customer capital is the knowledge buyers and sellers have of each other, rooted in mutual learning and in overall relationships that co-create value:

"If only you knew what your customers want, you could sell more to them. If only your customers knew what you could do, they would buy more from you. … Value creation is more and more a collaboration between buyer and seller."[17]



e. As the Subject of "Design Thinking"

Like "intellectual capital," the conceptualization, "design thinking," provides a framework and tool to facilitate high-quality innovation hypotheses.

As an extension of the design discipline, design thinking has been proposed as "a thought process" that provides "an approach to innovation -- to generat(ing) breakthrough ideas that have an impact." [18]

The design thinking tool:

-- "revolves around empathy" [7-2]

-- is based on the "design attitude," which features messiness that leads to clarity and "assumes that it is difficult to design an outstanding alternative, but once you have, the decision (to choose it) ... becomes trivial" [19]

-- "begins with skills designers have learned in the quest to match human needs with available technical resources within the practical constraints of business" [20]

--"puts these tools into the hands of people who may have never thought of themselves as designers and apply them to a vastly greater range of problems," including "new products that balance the needs of individuals and of society as a whole; new ideas that tackle the global challenges of health, poverty, and education; new strategies that result in differences that matter and a sense of purpose that engages everyone affected by them." [20-1]

Go Back to Prototype -- Expanded Description



[7] A. G. Lafley and Ram Charan, The Game-Changer, (Crown Business: New York, 2008), p 109

[7-2] Judy Estrin, Closing the Innovation Gap, Reigniting the Spark of Creativity in a Global Economy, (McGraw-Hill, 2009)

[7-3] Lafley and Charan, p 239

[8] C. K. Prahalad and M. S. Krishnan, The New Age of Innovation, (McGraw-Hill: New York, 2008), p 11

[9]Steven Johnson, Where Good Ideas Come From: The Natural History of Innovation, (New York Riverhead Books, 2010), p 159

[11] Say, Book 1, Chapter 1

[12] Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, (Harper & Brothers: New York and London, 1947), p 81

[13] Drucker, 1985

[13-1] Drucker, 1985, p 35

[14] Drucker, 1985

[15]Peter F. Drucker, Post-Capitalist Society, (Harper Business, 1993), pp 59-60

[15-1] As one example, see Dean Kamen comments within Jason Koebler, "Segway Inventor: Fear of Failure Kills U.S. Innovation," U.S. News, November 2, 2011,

[15-2] After the completion of this prototype, I discovered Dyer, Gregersen, and Christensen's differentiation between "innovative entrepreneurs" and "entrepreneurs": "Innovative entrepreneurs start companies that offer unique value to the market" as opposed to someone opening "a dry cleaner or a mortgage business ...." In 1985, Drucker used essentially the same "unique value" basis to distinguish between small business and an entrepreneurial small business; however, for Drucker entrepreneurship coincided with innovation -- opening a new dry cleaner would not constitute entrepreneurship, and "innovative" would be redundant as an adjective for "entrepreneur." Both sources held that large organizations can be "entrepreneurial."

See Jeff Dyer, Hal Gregersen, and Clayton M. Christensen, The Innovator's DNA, (Harvard Business Review Press: Boston, 2011), p 5., and Drucker, 1985.

[16] Drucker, 1985

[16-1] Thomas A. Stewart, The Wealth of Knowledge (Currency Books, 2001), p 17

[16-2] Stewart, Intellectual Capital (Currency Doubleday: New York, 1997), p ix

[16-3] Stewart, 1997, p 76

[16-4] Stewart, 1997, p 76

[16-5] Stewart, 1997, p 108

[16-6] Stewart, 1997, p 110

[17] Stewart, 2001, pp 192-193

[18] Tim Brown, Change by Design (HarperCollins, New York: 2009), pp 3-7

[19] Alexander Osterwalder & Yves Pigneur, Business Model Generation, (John Wiley & Sons: 2010), p 246

[20] Brown, p 4

[20-1] Brown, p 4