Innovation or experience – or both?

Many small businesses are innovators. Some are born out of incremental innovation, which improves on existing products or practices, while others are born out of radical innovation which sweeps aside existing products or practices and replaces them with something dramatically different.

One of the main challenges for all such enterprises, regardless of their approach, is to retain the spirit of innovation that was central to their creation. As a company grows, particularly after navigating the myriad challenges of its earliest stages, the temptation to find comfort in following the curve rather than staying ahead of it can sometimes seem too great to resist.

Relatedly, the longer a firm survives – and, of course, the more it thrives – the more its owners and employees are liable to develop attributes such as experience and intuition. Although perfectly natural, this process can heighten the friction between the emergent and the established. Owners and managers might come to believe that what has worked for a while should continue to work in the future and that the days of seismic shake-ups can therefore be consigned to the increasingly distant past.

Such is the all-pervading tension between the novel and the known. So how might we frame this quandary? Is it possible to state with confidence that the road ahead should be shaped by the transformational or left to the tried and trusted? Should the two be seen as mutually exclusive or might is just be that both have parts to play if a business is to flourish over the long term?

The advent of “big data” has compelled many industries to dabble in what we might call the prediction business. The fundamental idea behind the vast majority of these ventures is that algorithms hold a significant edge over humans when it comes to learning from a mass of historic information.

By way of illustration, consider the wonders of just-in-time logistics. This is a cost-cutting concept that allows goods to be delivered as and when they’re needed, thereby reducing waste. In the US, for instance, supermarkets such as Wal-Mart respond to forecasts of extreme weather events by drawing on vast quantities of data to stack their shelves with precisely what customers will want to snap up when a hurricane hits.

Much the same logic underpins predictive policing. Whereas crime-fighting was once largely a matter of old-fashioned gut instinct, today computers are frequently entrusted to calculate where and when criminal behaviour is likely to occur. In 2011, before “big data” even entered common parlance, a scheme in Manchester’s Trafford district was said to have saved potential victims more than £1 million.

All of this appears to support the argument for innovation. After all, where’s the value in experience and supposed expertise in the face of such monumental processing power? Before we get carried away, though, perhaps we should take a look at what happens in the absence of reams and reams of data.

According to figures from the US, where predictive policing has been widely used, algorithms are by no means the be-all and end-all in the crime-busting sphere. It turns out that they make a decent fist of preventing some offences but are rather less impressive in tackling others. In short: they’re fine at dealing with drug-dealing, assault and battery, gang violence and bike thefts but comparatively lousy when used in connection with crimes of passion and murders.

It seems reasonable to suggest that the explanation for this split lies in the quality and quantity of data. Burglaries tend to be commonplace, so the data set is likely to be too vast for a human to make sense of; by contrast, murders tend to be rare, so the data set is likely to be too small to generate a meaningful algorithm. This is why computers, with their unrivalled ability to distil a superabundance into something useful, excel in some areas; and it’s why police officers, with their human judgment and “feel”, excel in others.

Encouragingly, what this example shows is that it’s possible – and even desirable – to have the best of both worlds. The emergent and the established can work in harmony, with both contributing to overall success. Neither element should be dismissed out of hand, and neither should be embraced to the exclusion of the other. Each has its strengths and weaknesses, its pros and cons.

This is a lesson that every small business might bear in mind when contemplating the road ahead and the key to sustainability. Both those who favour innovation and those who favour experience should recognise their respective limits, appreciate how to move beyond them and acknowledge that dynamism and stability – though they may seem wholly at odds at first glance – can make for an attractive combination.

Simon Mosey is a Professor of Entrepreneurship and Innovation at Nottingham University Business School, Director of its Haydn Green Institute for Innovation and Entrepreneurship (HGIIE) and co-author of ‘Building an Entrepreneurial Organisation’.