Innovation is the key idea that is shaping corporate life, helping leaders conceive previously unimagined strategic options. Innovation enables to see potential acquisitions through a different lens, looking at them not just from a cost perspective, but also as a means of accelerating profitable top-line revenue growth and enhancing capabilities. Innovation also provides an edge in being able to enter new markets faster and deeper. The company that builds a culture of innovation is on the path to growth. Innovation, thus, creates customers by attracting new users and building stronger loyalty among current ones. This is also true for students pursuing higher education.
By putting innovation at the center of the business, from top to bottom, one can improve the numbers; at the same time, one will discover a much better way of doing things — more productive, more responsive, more inclusive, even more fun. People want to be part of growth, not endless cost-cutting. Customer expectations are also sky high. Customers today have very little patience with products that are old. Innovation cycles are becoming rapidly shorter, which means that companies have to be constantly on their toes, turning out new products, new services, and often new solutions because customers today don’t just want a product or a service. They want companies that solve their problems. All of this means that to thrive in today’s rapidly changing, globally competitive environment, companies have no choice but to be innovative.
One of the reasons for lack of innovation in educational institutions is the way students are trained to think and work. Saras D. Sarasvathy, Associate Professor, The Darden Graduate School of Business Administration, University of Virginia brilliantly defined this as “Casual Thinking” in modern management. In general, in MBA programs across the world, students are taught causal or predictive reasoning. Although causal thinking and reasoning are among our most central cognitive competences, causal thinking is not good at spotting potential surprises. Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. – alternative to achieve the given goal. All this leads to a lack of innovation when students are employed in a large organization.
Causal thinking is also one of the reasons for lack of innovation in managers in large organizations. Causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two-thirds of the known world. Causal Thinking and enable us to make predictions, to diagnose the causes of observed events, and to choose the right actions to achieve our goals.
Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. – alternative to achieve the given goal. The make-vs-buy decision in production, or choosing the target market with the highest potential return in marketing, or picking a portfolio with the lowest risk in finance, or even hiring the best person for the job in human resources management, are all examples of problems of causal reasoning. In effect, the causal thinker tends to assume that all possible contingencies have been covered in the planning process and that no unforeseen events are possible. This can leave the causal thinker in shock when the impossible happens. Causal thinkers are also not good at exploring all the possibilities for a company. They tend to focus on one or two of the more plausible outcomes and work toward them. All this leads to a lack of innovation in a large organization.
Prof. Saras explains ‘The word “effectual” is the inverse of “causal.”’ Effectual reasoning begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with. Effectual focus on a company's assets, talents and abilities, and they find ways to use those in the marketplace. They are open to unexpected developments and stand ready to marshal all their resources in pursuit of a new opportunity they didn't see coming, as effectual reasoning is inherently creative that makes it nimble and adaptable. Students thrive on effectual thinking and hence they are the bound to be more innovative when they are encouraged to create startups at university level.
Effectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus discovering the new world). While causal reasoning may or may not involve creative thinking, effectual reasoning is inherently creative. Effectual thinkers sometimes don't even know their goal when they start out. They focus on a company's assets, talents and abilities, and they find ways to use those in the marketplace. They are open to unexpected developments and stand ready to marshal all their resources in pursuit of a new opportunity they didn't see coming. This kind of thinking can make a company nimble and adaptable. As the marketplace shifts, effectual thinking can help you shift with it. Startups thrive on Effectual Thinking and hence they are more innovative than large organizations.
While both causal and effectual reasoning call for domain-specific skills and training, effectual reasoning demands something more – imagination, spontaneity, risk-taking, and salesmanship, which most that often desired, is lacking in both students who take the employee and not the entrepreneurial route, as well in large organisations, resulting in lack of innovation!