“What Incentive do they have to take a risk to do something different” so said Head of Technology...
Strategies to inspire continuous innovation in the built environment
The deeper, and deeper I go into my understanding of innovation, and what it actually means for the built environment, I realise that true innovation is hugely misunderstood.
Not least by me.
This article will have two parts:
Part One - an immediate look at strategies employed at two large real estate firms; particularly covering incremental, or what is known as continuous innovation.
Part Two - I will then explore the notion of innovation itself and how the term is misunderstood leading to the fear we associate with change.
In my continuing interview series, I am speaking to innovation focussed leaders from the built environment. Importantly, I am passionate about hearing from underrepresented leadership groups, with a pledge that 70% of my interviewees be female, or from a BAME background.
The idea is to build insights into change management, innovation, technology adoption and strategic implementation of digital transformation strategies.
One question is about how to form an innovative culture throughout a real estate organisation. Here are two responses from two quite different organisations.
Company 1: PGIM, the third largest real estate company in the world, with over 1,000 people and offices in 32 global locations, with $208bn under management, and dealing with $43bn of transactions
Leader: Sara Shank, Global Head of Innovation.
- Discover how an innovative attitude is driven by Eric Adler, the CEO and a top-down initiative
- Explore what Sara Shank means by a ‘Business Driven Innovation Culture’
- Understand how they set up 14 ‘Innovation Councils’, each with between five and eight employees
- Hear how they talk about problem statements to uncover innovative solutions
Company 2: GPE, a FTSE 250 company based out of the UK with 130+ people. They own and manage over £2.5bn of real estate in London
Leaders: James Pellatt, Director of Innovation, and Ella Walters-Pavlou, Innovation Manager
- Discover how CEO Toby Courtauld encourages a perspective of innovation in a holistic fashion; not just about technology
- Understand how GPE has set up a culture of innovation with 25% of their company volunteering as ‘innovation champions’
- Hear James and Ella discuss the importance of problem statements and how this is then worked into the longer-term strategy
I hope you will agree there are some fascinating insights there to learn from, but it speaks to an understanding of innovation itself. Lets do a deep dive into that as a concept.
A decade into understanding how technology impacts our sector, and over five years since, alongside Professor Andrew Baum, I defined the actual term PropTech, it is only really now that I am coming to terms with the words I actually expressed in the definition itself.
Part of that original 2017 definition stated that “PropTech is one small part of the wider digital transformation of the property industry. It describes a movement driving a mentality change with the real estate industry and its consumers regarding technology-driven innovation”
It is only now I start to understand the sheer power of the ‘mentality’ shift needed. It has never been about technological change in reality. Often, as the GPE interview covers above, CEO’s are simply trying to understand problems the business faces, and tech may only be part of the solution.
In part, I feel this is a misinterpretation of what Innovation actually is, and how it can be applied to our customers, and companies.
Over the years, I have sat on countless panels, having to correct people when there is an almost seamless fluidity of discussion interlacing words like innovation and disruption.
The two terms are fundamentally different but I fear too many foci on disruptive forces rather than general innovative progress. This creates some apprehension present in the generation and deployment of innovative strategies.
Generally, strategies are not about disruption but, as you will have seen in the videos above, generally lay in progressive and continual innovation. And here starts a broader understanding of innovation.
Let me expand on this briefly through some academic, and industry literature.
Different types of Innovation the real estate industry needs to know about
According to this article in Tech Funnel, there are four main types of innovation:
- Incremental innovation (Also called sustaining innovation, continuous innovation, dynamically continuous innovation).
- Disruptive innovation (Also called discontinuous innovation).
- Architectural innovation (Also known as basic research).
- Radical innovation (Also called breakthrough innovation).
I would refine to just three as ‘Radical’ and ‘Disruptive’ are one of the same, but it is important to know as literature often confuses all these terms.
Perhaps an easier classification came from Collective Campus, in this article, who broke innovation down to three forms from the start.
Horizon 1 Incremental innovation: extend and defend the course business (eg. iPhone 7S)
Horizon 2 Adjacent Innovation: build new lines of business by combining your core assets with new technologies or business models (eg. Uber Eats)
Horizon 3 Disruptive Innovation: create new breakthrough businesses
It is the true understanding of these three different forms of innovation that I feel result in inertia to create a strategy to deal with innovation in the first place. It will also be a lack of understanding in a broader employee base for why an innovation strategy doesn’t get truly adopted either.
Consider a criticism levelled at C Suite, and boardrooms regularly. They are fearful of change, and don’t want to risk their reputation should something spectacularly fail.
I put it to you that they are fearful of radical change, not incremental change. They are not going to be fearful of an ongoing look at business processes to improve efficiencies or experiences of customers or employees.
To a lesser extent, this will be the same for employees. They are fearful of their own position being disrupted and made obsolete. They would be less fearful if they were in the knowledge that the major focus is on improving their experience, or their customers.
Last week I wrote about the challenge of misaligned incentives and innovation. A better understanding of the time spent on continual innovation, rather than radical innovation would be better placed when it comes to whole company incentive structures. A focus on bringing the whole company together on this premise would incentivise more of the company to be involved.
Collective Campus continued in their article to associate a time suggestion with innovation considerations. This further reinforces the point that the lion's share of an innovation journey lies in continual or incremental innovation, not disruptive.
Horizon 1 - Incremental Innovation: 70-80% time
Horizon 2 - Adjacent Innovation: 10-20% time
Horizon 3 - Radical Innovation: 5-10% time
To conclude, the fascinating insights shared by GPE and PGIM innovation teams speak to the element of incremental innovation journeys these businesses are undergoing. They are supported both by C Suite and broader employees. Both a top-down and a bottom-up strategy.
This is made possible but it is inclusive. The innovation strategy is not threatening to anybody. It is in everybody's interest to be involved in moving the business on.
Without question, every single organisation should have the sorts of strategies PGIM and GPE have. They will start to outshine other organisations as they improve everything they do, and upskill their workforce.
It isn’t the end of the story though.
None of my discussions talked about radical innovation. I haven’t heard anything from anyone about this side of their innovation strategy.
I haven’t heard anyone talk about challenging their entire business thesis. To rock the board. To bring in outside expertise and knowledge to formulate a new business line to challenge the status quo.
That is risky. That upsets the company structure, the incentives are out of line, and the comfort levels of staff, including shareholders, investors and C Suite.
In the coming articles and interviews I will get down deeper into that more risky form of innovation, but for now, there is no reason not to follow the lessons from above and start realising incremental innovation is good for everyone.