Why organisations should prepare for digital innovation early

Organisations typically innovate in phases, starting with some new technological implementation or practice and later moving into more advanced experimentation and equipment in efforts to gain a competitive advantage. Many would assume that firms gain knowledge as they go along, so later stages in such a journey may be easier because the firm can build on prior experience. This is often to be commended.

Yet companies can fall prey to their own prior experience when it comes to innovation, allowing past routines and experiences to constrain them from truly opening their eyes to exciting new horizons. People can do the same in their personal lives, by not trying new things because similar experiences in the past didn’t turn out as well as expected.

Research by Virginia Leavell, Assistant Professor in Organisational Theory and Information Systems at Cambridge Judge Business School, uses ethnographic techniques to introduce a new concept to this field of how accumulated experience may enable or constrain innovation.

How smart meter adoption reveals the risks of interpretive debt in digital innovation

Focusing on the adoption of smart metering technology by 2 municipal water agencies on the West Coast of the US, Virginia introduces the concept of “’interpretive debt”, which she defines as the accumulated interpretive obligations from past decisions about what technologies are for, what problems they solve and what risks they carry – obligations that may narrow innovative possibilities going forward. Whereas most research on innovation looks at purchase and implementation of new technologies, Virginia’s study goes further back in the innovation process to examine how firms anticipate the future such that they may narrow such possibilities even before they are encountered.

“When we study technological changes in an organisation we always look at when something was adopted,” she says. “But this research looks at what happens before a firm even gets the technology – two and a half years before they adopt it – as companies come to understand the tech, build a budget for it and then eventually adopt it. Usually the beginning of the story is the procurement of the technology, but this study goes back well before then.”

Why digital innovation depends on understanding technology from devices to data

Virginia’s research further explores the concept of layered architectural framing within organisations. This shifts “the central question from how organisations interpret new digital technologies to where in the architecture that interpretation falls”, says the study, which identifies the layers in the smart meter scenario as physical devices, network infrastructure, service platforms and data content.

“These framings materialise through anticipatory practices – organisational actions that restructure the present based on projected futures prior to procurement – converting interpretive orientations into organisational fact and setting innovation pathways in motion before technologies arrive. Together, these concepts reconceptualise digital innovation initiation as a performative, layer-specific process through which past experience shapes which futures become organisationally possible.”

How 2 water agencies took different approaches to smart meter innovation

The research focuses on how the 2 water agencies initiate Advanced Metering Infrastructure (AMI) systems, commonly known as smart metering systems. The research focuses on one water agency that the study calls Fogtown, which had extensive experience over 2 decades in digital meters that predated smart meters, and a second water agency known as Suntown, which had little prior digital metering experience but instead relied mostly on old-fashioned mechanical meter readings.

“The findings reveal that Fogtown, despite its extensive digital experience, pursued AMI narrowly to repair troubled infrastructure, while Suntown, lacking any prior experience with digital metering, pursued it expansively as a platform for data-driven organisational transformation,” says Virginia’s research.

How historical experience can enable or constrain digital innovation

The research details how a firm’s interpretation of historical experiences shape innovation across 3 dimensions that could be enabling or constraining:

• material infrastructure that builds up over time to establish the technical foundations within which innovation is initiated
• organisational learning that shapes how prior experience informs responses to novelty
• interpretive work that makes sense of what new technologies are and what they will be used for

“The key breakthrough for me in doing this research was to focus on layering and how the 2 agencies come from separate innovation paths,” says Virginia. “Fogtown had lots of prior experience with digital metering, so it saw AMI as simply a piece of hardware, whereas Suntown in coming at this area with fresher eyes saw AMI as a layered enabler of data-driven innovation that went far beyond a device.”

Why layered digital technologies can change how organisations innovate

Virginia explains further:

“There are 2 streams of literature on whether prior tech experience is an enabler or a constraint. With regard to infrastructure one might think that a firm should be ready to advance further through new technology because it recognises the advantages, but it can also weigh them down. Both explanations exist in the literature, so I said to myself: ‘maybe it’s the layering that’s the key element here’. In the past, a company might buy the whole stack when it comes to new technology, but today, digital innovation occurs through a combination of modular layers including software and hardware and how they interact to provide crucial data points.

“A meter is hardware but it’s also a network, and for Fogtown a lot of the data advantages of smart metering was dismissed. The new AMI smart meter allows a data point every 15 minutes: you can find leaks, spikes in usages such as a farm doing irrigation at 5 am, and other times of peak demand. The data has a lot of potential, which Suntown tapped but Fogtown did not because it was less receptive to the possibilities.”

As one Suntown executive commented during the agency’s AMI learning process: “The positive things that can be done with the data are pretty insane. That is our new focus – how do we take this data and use it to do things differently around here.”

A big constraint for Fogtown in making the most of API was the fact that implementing this new technology meant connecting it to existing infrastructures, and thus creating dependencies between different systems that can divert resources into upkeep that in turn reduces flexibility to innovate going forward. As Virginia writes: “Each event in Fogtown’s history was not just a thing that happened but an interpretive obligation that accumulated and narrowed the organisation’s recognition of what a smart meter was, and what came next.”

How on the ground research uncovered innovation decision-making in water utilities

Virginia’s study draws on a 3-year investigation into the 2 water agencies. Her research included examining daily work practices of meter readers and other employees of the 2 agencies, observing interactions during AMI meetings at the water agencies and delving deeply into the technology itself.

For example, Virginia observed in accompanying Fogtown meter readers on their rounds that everyday repairs were interrupted by other repairs, “as meter readers received a phone call or tap on the shoulder calling their attention to something else that needed attention” with the older infrastructure. One meter reader commented on the “challenge we have in trying to keep the old stuff alive. A lot of this stuff needs to be retrofitted or replaced.”

Politics also played a part in Fogtown’s constraining view of AMI. When a previous water desalination project failed, Fogtown came to believe that the local city council did not provide “political cover” from local complaints, and this sour experience “made expansive, visible technological innovation seem dangerous”.

Why organisations interpret smart metering technology in different ways

Observation of the agencies’ internal discussions on AMI uncovered some really interesting patterns, as outlined in the research. “Critically, I noticed that when Fogtown staff discussed AMI’s capabilities, their talk concentrated on hardware and networks, while Suntown staff discussed data analysis and customer engagement. This pattern suggested the organisations were not simply framing AMI differently in degree but attending to fundamentally different aspects of the technology,” Virginia writes.

The lack of prior experience with digital metering led Suntown to seek external engagement with consultants, industry networks and peer agencies to learn extensively about AI at all levels. Suntown “develop(ed) an understanding across all layers rather than fixating on any particular one,” Virginia writes. “Where Fogtown arrived at initiation with interpretive obligations already in place, Suntown arrived with an openness that external engagement actively filled.

“While Fogtown limited input it felt it did not need, Suntown sought the learning it recognised it lacked,” says the research, which noted that external engagement at Fogtown was less focused on new organisational learning than on the “immediate need to legitimate a system upgrade to upper management”.

Managers need to know that preparation for innovation is innovation itself

For managers, the research suggests that they actively “interrogate whether and how accumulated expertise anchors attention at specific layers while obscuring others. Organisations should treat experience as a double-edged sword, implementing practices to counteract interpretive debt before it constrains innovation pathways. This means investing in external learning even when internal confidence is high.

“The initiation period is not preparation for innovation – it is innovation, and treating it as such requires investing commensurate attention and resources in anticipatory practices that expand rather than constrain future possibilities.”