Innovation vs. Optimization

There was an extremely interesting blog post on "BankerVision" regarding innovation vs. optimization.  The entirety of the post can be found here.

What intrigued me, as platform evangelist, was the following statement:

"This particular institution suggested that the line between innovation and optimisation can become blurred. Optimisation, they explained, is the process of measuring and improving in little steps. Six Sigma, for example, is optimisation. And the tendency in banks, in their view, is to optimise first and innovate later.

This bank’s opinion is that optimisation is not the same as innovation. And, they added, you can optimise yourself out of the ability to be innovative at all.

Initially, I disagreed with this. Doing small, incremental optimisation sounds rather like doing small, incremental innovation. But then I thought about the question of incremental vs. optimisation in the context of our own definition of innovation: innovation is anything except what we would have done as business as usual.

Optimisation, clearly, is business as usual. Innovation isn’t."

When people ask about the main competition of IP Commerce, I often reply "status quo."  This may sound trite, but it is actually true.  The hardest part about being new technology is that it is often viewed as disruptive to business as usual.

When reading James Gardner’s thoughts, I realized that there is a beauty in a platform.  This is, namely, the capability to come alongside existing business operations and be supplemental.  For example, when discussing integrated software solutions with banks at a recent Financial Institution conference, the recommendation is not to stop selling hardware/services as they do today. . .but rather to add software solutions to their portfolio.

Ultimately, the ability to provide a software solution that allows for card processing and also provides integrated reporting provides immediate value to both the merchant and to the bank.  This does not require making a decision between ongoing optimization and future innovation.  It allows for existing methodologies and processes to remain intact while offering new capabilities to the market.  For example, imagine an integrated solution that is focused SOLELY on consolidated reporting.  No matter where the payment is initiated (POS, eCommerce) there is inherent value in the consolidation of that settlement information.

It is when these new capabilities take hold, and are proven successful, that the decision of "optimization" can be made to extend additional services (quickly and simply) rather than build out new infrastructure.  It becomes "status quo" rather than just "new."

If any business can solve immediate pain, and then provide simple solutions to future needs, it isn’t required to fight the uphill battle of innovation.

The IPC solution is a platform. . .not a new software package.  Because of this, the value to the participants (Service Providers, Software Companies, Distribution Channels) looking at their current business is immediate and, ultimately, allows for innovation.

October 25, 2007

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