Last week, Talis hosted a second visit from Small Heath School, an “inner ring, split site, co-educational 11-18 comprehensive school” in South Birmingham. In the first visit, Talis’ Marketing team talked with a small group of Year 12 A level Business Studies students about innovative marketing practices that are unlikely to have found themselves in school textbooks just yet. We received excellent feedback from both the teachers and the students. Importantly, the Talis people involved really enjoyed the experience and were amenable to the idea of further engagement with local schools.

So when one of the teachers contacted me a few weeks ago to propose a second visit, I immediately agreed, and found it easy to recruit volunteers within Talis. The school is currently running a course called Setting Up An Online Business, again as part of A level Business Studies, and it made complete sense to approach a local innovative software company like Talis, to help bring it to life.

The group was a mix of Year 12 and Year 13 students, and it was a larger group overall than the first visit. The specific nature of the brief meant that we would have to think carefully about the relevance of our experiences as a company – Talis is not an online business, as such, but has nevertheless built up an impressive bank of expertise in this area, and is always happy to share.

We’d learnt a lot from the first visit about making our ideas accessible to school students -there tends to be a lot of jargon in technology companies, and Talis is no exception. So after I’d given a brief introduction to Talis and its business, Dave Robinson, our Senior Creative (and former student of Small Heath School) asked the students what made them buy the stuff they bought – leading nicely into a useful session on online brand identity and management. Most of the students took notes, although one or two could have been more engaged at this stage. We turned a corner with the whole group, though, when Dave asked them about the course, and whether any of them had tried to build their own websites. It turned out that two of them had – one group of boys was developing a cyber cafe business, and two of the girls were setting up an online bridal business. As they described the thinking behind their branding decisions (for example, the bridal business makes use of bold bollywood colours), Dave was visibly impressed, and was able to link some of the more general points he’d made earlier on with the students’ own experiences.

This really changed the mood of the morning. Gone were the whisperings, hair-fiddling and general low-intensity disruption that had characterised one part of the room in the first half hour. The students were completely switched on and remained so for the rest of the visit. This somehow meant more to us than perfect behaviour from the outset – we had worked hard to engage them all, and we had succeeded.

Grant White from the Marketing Team followed this up with an interactive session on how to manage online relationships. He referred back to the students’ cyber-cafe and bridal business, asking them what type of stakeholders these businesses might have, what sort of information would be useful to hold about them, and what activities would be useful to track. The students responded well, and contributions came from all parts of the room. Both the students and the teacher were impressed with the capabilities of Google Analytics that Grant demonstrated. The teacher had been unaware that the tool is free of charge, and certainly didn’t know how powerfully it can track online user behaviour.

Finally, Chris Clarke gave an amazing presentation on successful online businesses. He’d carefully reviewed the research he’d carried out when he was setting up Talis’ Education division, and had extended it out impressively to create a clear picture of four businesses that would be familiar to all the students – Apple, Facebook, Google and Microsoft. Chris charted the development of each of these companies, highlighting what were the pre-requisites, what were the risks, and what you could do to minimise the possibility of failure.

So we ran an event that started off ok and finished brilliantly. We expanded the knowledge of the teacher, and we energised the students. From Talis’ perspective, we put into practice our tagline “Shared innovation”, by disseminating insights from our own experiences to a cohort who are only a couple of years younger than the likes of Sergey Brin, Larry Page and Steve Jobs when they first set out on their path to online glory.

Justin Leavesley

Meaningful differentiation is a real problem for business. If you do the same thing as everyone else, chances are competition will mean that you do not earn unusual profits. If you play the game of linear economics then the theory says you shouldn’t earn much above the marginal cost of the goods produced, and as an entrepreneur that sucks. As the world becomes more modular and connected, it is becoming easier and faster to imitate what works making it much harder for business to maintain differentiation. Even with companies like Google, there are always more smart and innovative people not on your payroll than on it.

But when business is driven to improve, it faces a defining dilemma. Will it make a small and obvious incremental improvement that it knows people want; or will it make a more radical departure, innovating where there is not yet known demand. Incremental and radical innovation are both expensive, however, so only a modest number of innovations can usually be supported. Innovation is therefore limited not only by available financial capital but—more importantly—by available human capital: the skills, talents and passions of employees. But by its nature, radical innovation also has a very high failure rate. The high cost and high failure rate make radical innovation very hard for most business. It follows then that we see most businesses organised to invest far more in incremental innovation than true, radical innovation. With incremental or radical innovation, success is about choosing the right small number of the highest value innovations.

Nothing new here so far. Lets call this kind of business model: the value creation model. The central idea of the value creating business is that a business organises the resources at its disposal to create a valuable product or service that solves problems that customers care about. The cost of innovation is centralised and often it will try and capture the majority of the value in the value chain.

Now imagine a new type of company, which thinks about things a bit differently, enters a market populated by value creating businesses. This new type of company has found a way to remove the need to foresee which innovations will work. Instead of making the right bet on a small number of innovations, the company runs literally thousands of innovative experiments and the market selects those that are fittest to grow and become successful, the others remain small or simply vanish. Through diversity, the winners emerge over time: chosen by the market not a product manager.  This amazing trick is possible because the company has found a way to decentralise the financial and human costs of innovation so it does not bear the cost of failed innovation, but amazingly, does share in the success of the winning innovations.

This new type of company understands that the innovation it undertakes is to provide an infrastructure to enable the innovation of others. It may not have even created the vast majority of the value of customers experience at all. This company understands its job is to enable an ecosystem whose job is to lower the cost of innovating and to share the benefits of useful innovation with each participant. These economics are non-linear, driven by feedback loops generating direct and indirect network effects. The company enables the ecosystem, but it is the ecosystem that generates the durable value.

Now the value creation companies face something quite different: not a competitor business with the same constraints as themselves; but a seething, decentralised ecosystem where innovation can come from anywhere. The new company has inverted the innovation problem. Through building an infrastructure to decentralise the costs and benefits of innovation, the company has not bound the available financial or human capital within the its walls. Instead it can draw any motivated innovators into the ecosystem without having to hire or fund them. This is a massively scalable model in which a relatively small company can enable huge value creation.

Some call the infrastructure that supports these ecosystems a platform. Some platforms are proprietary like Microsoft Windows or MySpace; others are open platforms like Wikipedia or the web itself. In most cases though, the value of the ecosystem vastly outweighs the value of the actual platform technology. The platform is the enabler rather than the value. For example, if you had a copy of the ebay source code, all you would have is an auction site with no sellers or buyers. As with the web itself, both the platform and the ecosystem need not be owned by a commercial company nor indeed anyone.

As everything becomes more and more connected, the level of complexity and pace of change in many markets is going to continue to increase. The linear thinking of producer versus consumer is being daily challenged ever more deeply. It leads to a centralised business model which cannot scale to match the complexity created by this increasingly connected society. If we apply Moore’s Law, for example, to mobile technology; we see that the mobile devices connecting us together will be 1000 times more powerful in only 15 years. The number of industries or spheres of endeavour where shared innovation can be applied grows as the cost of connecting everything declines. It is time to consider shared innovation.