Critiques of the Red Queen Model

One of the immensely valuable aspects of a weblog is the opportunity it provides to test ideas.  On occasion, I've forwarded my version of a Red Queen model (7:13 video).  Polymath Benoit Mandelbrot might call it a "cartoon":

I use the term in the sense of the Renaissance fresco painters and tapestry designers: a preliminary sketch in which the artist tries out a few ideas, and which if successful becomes a pattern for the full ouvre to come.

The basic idea of my cartoon is pretty simple:  If the fundamental pace of an industry—its clockspeed—increases by, say, 10% per year, the compounded effect is a kind of innovation deficit.  Taken literally, one would have to "run" twice as fast today just to keep still.  I chose to define innovation as launching new products.  I've also inferred that the model supports a trend toward Open Innovation.  In this case, Open Innovation would be the leveraging of external capacity to launch new products.

Fortunately, the idea has prompted critical feedback.  For instance, John Hagel wrote:

One quibble I would make is with Dave's definition of innovation as "the adoption of products by customers".  This is a product-centric view of innovation and ignores the impact of process innovation (which also includes innovations in work practices).  In fact, process innovations are ultimately much more powerful in terms of generating business value because, if done right, they can generate a compounding effect of their own - they keep on giving, in contrast to most product innovations where the tyranny of product life cycles limits the potential value creation.  Rapid incremental process innovation combined with aggressive leveraging of third party resources may in fact hold the key to diminishing, if not overcoming, the Red Queen effect.

That's fair enough: innovation is more than launching new products.  On the other hand, I think that even my cartoon model accommodates John's point.  Companies generate revenues by selling products and services to users.  As the pace of change forces the "retirement" of products and enabling technologies, new products must be launched for the company to sustain itself and grow.  Although I didn't expand upon it in my cartoon, process innovations (as I understand the term) increase the capacity to launch new products by increasing capability.  (The way I use the terms is that capacity is the product of resources times capability, a kind of productivity rate.)  In other words, an increase in capability decreases the average cost to launch a successful new product.  So, absolutely, process innovations can increase capacity and, hence, mitigate the Red Queen effect.  Furthermore, because capability building is often subject to S-shaped learning curves, an investment in process innovations can yield attractive returns versus simply throwing more resources at the problem.

Kathleen Fasanella commented:

I found the Red Queen presentation problematic; the conclusions don't necessarily dictate the adoption of open innovation (read: confirmation bias).

Quite right.  Conceptually, there are considerable potential advantages of a closed (i.e., internally focused) model of innovation.  For instance, combining capacities within a single organization can make hand-offs between functions easier.  That's the essence of the classic transaction cost theory of the firm.  Nevertheless, I think John Hagel and his collaborator John Seely Brown are on to something:

Specialization requires connectivity and effective methods of coordination.  If enterprises cannot depend on other specialized entities to complement their own activities, they will avoid specialization themselves and suffer productivity penalties as a consequence...By connecting with other specialized institutions, we create an opportunity for leveraged capability building—getting better faster by working with others.

To the extent the Red Queen effect is real, it doesn't dictate the adoption of Open Innovation, I just think it's a good idea (but not the only good idea).

Although Richard Veryard's original critique of my Red Queen cartoon echoed John Hagel's, I find Richard's skepticism regarding the fundamental assumption of accelerating industry clockspeed the most intriguing:

I have always been wary of the common belief that technological change is accelerating.  I think this belief derives from a combination of proximity, selectivity and distorted perception.  I think we can sometimes be disproportionately impressed by the glamour of recent technology, and misled by the commercially-driven measures of intellectual property (such as volumes of patent activity and product releases).

I think there is evidence of accelerating clockspeed.  Nevertheless, Richard's skepticism raises a really interesting point: Is such acceleration constant?  In other words, might the evolution of innovation be punctuated?  As I understand it, Mandelbrot has hypothesized a kind of variable market pacing he's called "trading time" and "multifractal time".  He acknowledges that the concept "remains mostly speculation.  But it already permits some extraordinarily faithful reproductions of a financial market."

So, here's where I think this exploration is taking me:

• It's conceivable that different industries and markets feel alternatively fast and slow over time.
• An accelerating market fuels the need for innovation—of all kinds.
• An Open Innovation model offers the prospect of value in two guises.  First of all, it is a way to source compelling new products and services.  Secondly, collaboration among specialist organizations offers the potential of accelerated capability building.
• The degree of emphasis on Open Innovation models may wax and wane as a function of perceived changes in industry clockspeed.

Thus, the cartoon evolves.

Thanks for the feedback!

For more: The Only Sustainable Edge, The (Mis)Behavior of Markets, Open Innovation: Researching a New Paradigm

Comments

[Richard Veryard]

You choose to define innovation as "launching new products". Both John Hagel and I believe that there are other kinds of innovation that are important. But I have a more fundamental concern with your definition - if I don't know exactly what counts as a "new product", then I don't know how to count them. If this year's model has a slightly faster chip than last year's model, or a brushed aluminium case, does that count as a "new product"? Let's say the iPod is a new product, but is the iPhone really a new product, or just a fancy redesign of an old product?

Lots of people in product development have a vested interest in labelling everything as "new improved". Pharma companies spend a small fortune looking for small variations on existing drugs, so they can get patent protection for the "new" formula. But if you take these descriptions at face value, I think you get a fundamentally distorted view of the underlying technology change.

This is why I think we need to start with a rigorous model of technology change, which handles some of the complications I raise in my blog, before we can begin to calculate scientifically the speed of technology change.