This hack draws its inspiration from the way some places (e.g. Hong Kong in China or Trieste in Italy) have been designated Free Economic Zones in order to spur commerce. For an organization, one key step on the path to becoming truly adaptable is to define some business capabilities where more freedom is needed to be able to innovate more easily because innovation and differentiation in these areas is critical to the company. These areas should be defined as ”free innovation zones” with separate funding and special rules:
Four Key Characteristics of Free Innovation Zones:
- Freedom of Environment - designed to operate separately and independently from the existing corporate environment.
- Freedom of Funds - direct investments and incentives, provided in stages when idea advances to maturing stages, and increased applicability (applying to solve problems in real life cases).
- Freedom of Procedures - simplification of procedures, in pursuit of objectives, free entrance, small committed resources and infrastructure support.
- Freedom of Architecture and Standards – not limited to using existing platforms, technologies, and architectures standardized across the rest of the organization.
Just as with Free Economic Zones in countries, this approach is not right for every part of the organization. The reason why this approach should be limited to some business areas is to focus the innovative energy where it makes most strategic sense for the company. You might still be making the wrong bets but at least you are exploring a wider front.
In many companies the IT organization and solutions have become barriers and not a source of innovation. Focus on cost reductions and process efficiency has led to corporate-wide ERP systems and standardized infrastructure. Often a lot of innovative thinking has been invested in implementing these systems but when in place, they effectively lock down the company and changes become very costly and time consuming.
Define some business capabilities as "Free Innovation Zones"
- These are areas where innovation and differentiation is critical
- These will normally be value or revenue creating areas
Provide seed funding for initiatives in the "Free Innovation Zones"
- Establish initiative pipeline separated from the traditional IT project pipeline with separate governance and budget
- Simplify or remove requirements for business case or architectural fit to existing IT solutions
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Three key considerations for funding:
- Differentiate - Ideas that provide significant competitive advantage to current business model
- Innovate - new ways or different ways of thinking of solving existing problems
- Value - brings significant value to customers, or new sources of revenue to the organization
Require "sales effort" to line of business
- Further funding of the initiatives to be done directly by the lines of business, outside of ordinary IT-funding governance
- Once the initiative is proven successful, develop a framework of "replicating the success" to the rest of the business
Organizations may need to "forget the past" to create new futures. The Free Innovation Zones are areas where ideas of "futures" can be experimented without legacy constraints. The ideas in this hack could ease the business-driven IT innovation process in the areas where it matters most. At the same time the solid and cost efficient legacy IT-solutions will be protected in the other areas.
One other important impact is that nimble projects could also change the perception (and sometimes reality) of IT being a “dinosaur” and a barrier to innovation.
- Identify business capabilities needed for future growth
- Define a Free Innovation Zone around one or more of these areas (typically where IT struggles to cover demands because of lack of agility and too much focus on backbone systems)
- Ensure seed funding for a few initiatives
- Invite for ideas for innovation (with little formality)
- Have business leaders in the zone select the best ideas (without being confined by IT restrictions)
- Fund the selected ideas
- Evaluate the results
It strikes me that there is the need to develop the capability and awareness for objective situational diagnosis, so that you know when and where to declare innovation zones. There are some discussions of this in "The first 90 days" for new managers. some of these approaches need to be institutionalised. Some thought needs to be given to resources and not just capital. would we encourage companies to free people up regularly to work on the innovation of their choice?
Rather than making this totally architecture free, it may be better to address the support systems for the free zones so that there are standardized, but light weight systems and processes for governance and shared services which support the free zones. It's basically recognising that all your internal customers are different and innovation implies light weight businesses which can lever as much benefit as they can from the parent, but be nimbler, faster and cheaper to run.
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I agree with most of your comments. I do however not believe in freeing up people regularly to work with innovations of their choice. First you need to come up with the idea, then you need to execute.
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Borge
This is a great hack and application of a concept that goes beyond the idea of just creating an incubator. I particularly like that you are concentrating on IT and its aspects. A few questions to help clarify the hack.
I am assuming that a Free Economic Zone would also be a 'free architecture' zone meaning that people can create their own systems, applications, etc to support the goals of the free zone. I would imagine that you might require the free zone to use existing systems to transact business -- create economically important transactions via core systems in order to maintain business integrity. There is a lot you can do with new technologies (mobile, social, cloud, analytics) that does not require setting up a separate transaction system.
Marketing and sales have often been associated with "free" zones as the criticality of revenue trumps requirements for standards. This was definitely in the first instance of the Internet and increasingly with mobile and social applications. Your blog mentioned revenue as a critical criteria so are these 'free' zones another way of roping off marketing and sales or are there separate rules for free zones outside of marketing.
Just a few questions to explore the boundaries of the free economic zone.
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Mark,
My idea of a Free Economic Zone does not address the basic transaction systems, or ”systems of record”. The FEZ is a place where you can build new functionality or systems as an addition to the transaction engine without being limited by its architectural constraints. Initially these systems may be isolated islands, but the sustainable ones must longer term be integrated with the transaction systems.
I do not think we should limit the free zones to marketing and sales, but there is probably a bigger potential here than in the more back office functions.
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I support the ideas of the last step to be "Evaluate the results". In my opinion, a lot shall be done to emphasize the diffic ulties that should happen if the zone was not a "free-economic" one. How things should have been hard !
And also found the new areas that can be considered for next steps.
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I would like to join this hack.
My email : dimonekene.ditutala@sonangol.co.ao
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Hi Dimonekene,
Sorry not to be able to reply to you earlier. I have been away on vacation for a week.
Regards
Borge Teigland
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Hi Borge and Margaret-- Nicely done-- I really like where you've taken this initial draft of the hack. This idea of "free economic zones" is a great way to allow a company to experiment nimbly without being held back by standardized infrastructure and governance.
If you have time to continue to work through this idea, a couple of places I'd like to learn more about your thinking:
1) Love the idea of defining what parts of an organization make the most sense to try out as a free economic zone. You mention that the best candidates will be places where innovation and differentiation are crucial and are value or revenue-creating areas. Are there additional criteria that would be important to consider? Perhaps we could make a checklist or a simple set of criteria that would help a company determine the best candidates? A couple of possibilities from me: 1) low dependence on other parts of the business for effort to be successful (i.e. can incubate mostly on its own) 2) only minor consequences for rest of the org if this effort operates independently.
2) Under the challenges section, you talk about the key issues of creating islands of information and eroding the value of backbone systems. I'd love to hear more about how we might mitigate these risks. For example are there a set of core design principles (aka, an API) that even projects in free economic zones still adhere to so that it will be easy for them to re-integrate into the organization down the road? Or at least a set of suggested parameters?
Great work-- I think this is the essence of a wonderful hack!
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Chris,
Thank you for valuable input. I have with very valuable input from Margaret added some more concrete criterias for the Free Economic Zones,. Regarding the challenges I am struggling a little with the core design principles or the integration strategy. I think that this will have to wait until this hack might be further developed
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Hi Chris,
Borge is away on vacation.
Many countries have identified free economic zones where direct foreign investments, free trade, and tax exemptions are allowed and freed of political or economic constraints.
The key idea is to support ideas/experiments that would differentiate and innovation without constraints from budgets, rules, legacy systems, procedures and bureaucracy. The scope would be based on certain business capabilities from which the company would like to gain competitive advantages.
You've highlighted some additional good criteria like low dependence, minor impact. We'll incorporate.
Borge created this wonderful hack, and I'm glad to be part of his team.
Margaret.
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Thank you. I will during the next couple of days make a first version of the hack. I can be reached at borge.teigland@norskeskog.com.
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