Over the past 24 months Innovation has become the leading strategy for corporate growth, and increasingly CEOs and their Operations Teams must figure out how their companies can innovate better, quicker and faster. That was the conclusion of the tenth annual global survey of the State of Innovation by the Boston Consulting Group which echoed 3 years of research from the CEO Forum Group. In both research papers, respondents ranked innovation as either the top-most priority or a top-three priority at their company.
Innovation certainly isn’t what it was. It was once the province of a department, with a clear remit: new product development. Today, it’s everywhere. It concerns not only products and services, but also processes, technologies, business models, pricing plans and routes to market, even performance management practices – the whole chain in fact.
Yet, building an innovation capability is not easy. The anticipated benefits can fail to materialise – and worse still can distract the company from its operational focus. To boost innovation, global companies have set up suggestion schemes, ideation programs, venturing units, and online forums. But our discussions with firms revealed that achieving widespread participation in innovation remains an elusive goal.
Both sets of research yielded a number of key insights.
1. Speed things up.
Size gives you scale, but for innovation, speed is more critical and the importance of speed is rising fast because it “enables companies to catch consumer trends as they emerge, leave competitors flat-footed, and even drive costs down and quality up.” In fact, overly long development times were the most-cited obstacle to generating returns on innovation and product development in its 2015 survey.
2. Beware of the rewards trap
The central preoccupation for many companies seeking to expand their innovation capability is what kind of reward system to put in place. Yet, rewards did not emerge as a strong driver of innovation. Innovation is intrinsically enjoyable. What employees cared most about was having a chance to make an impact and being recognised for it.
The consensus among our study companies was that rewards played, at best, a secondary (hygiene-type) role and, at worst, could actually prove counterproductive – acting as a disincentive to those whose ideas did not end up paying off.
Clued-in companies attend more to the social and personal drivers of discretionary effort than the material drivers.
3. Make R&D processes lean.
Companies that are most successful at R&D understand the importance of and emphasises process even though this is a creative function whose practitioners enjoy intellectual and practical freedom. The percentage of strongly innovating companies that followed “lean” principles for R&D was two to three times greater than for weaker counterparts, enabling them to gain significant competitive advantages by developing higher-quality products up to six months sooner than others while also reducing deviations from product target costs by more than 35%.
4: Forget the flash of insight – Process is needed
The “Eureka moment” maintains a powerful grip on our view of innovation, but it perpetuates a distorted view of the innovation process. It suggests that the core challenge is to generate ideas. This explains why many companies are drawn to big brainstorming events like deep dives, ideation workshops and innovation jams.
New ideas are clearly important, but they are just the first step in a long sequence of activities that culminates in successful commercialisation. Real problems occur in latter stages, where people have to work out how to deliver on the idea and turn it into reality.
Paradoxically, innovation events often prove damaging if the company does not have a system for acknowledging, assessing, and developing the bright ideas that emerge from them. Before embarking on such an exercise, companies must be clear that a shortage of ideas is an issue – and, if that’s the case, they should not underestimate the amount of work needed once the workshop is completed.
5. Enbrace technology.
Advances in technology platforms ranked as the most important factor driving innovation. More than half of those who saw tech platforms and big data as having a big impact were already actively pursuing them as avenues of innovation. General Electric, for instance, is using the new technology of additive (or 3-D) manufacturing to reduce the cost of making transducer probes, the most expensive component in its ultrasound equipment. This innovation resulted in both significant efficiencies and more flexible production lines, driving down costs, which in turn led to uses of the technology where price previously had been prohibitive.
6: Top-down innovation still matters
The dominant message in much writing on innovation is that bottom-up innovation is best. The reasoning is that top executives are too removed from reality to understand customers’ needs or to come up with ideas that truly resonate with them. It is a compelling message, but one which found little support in our investigations. Rather, the most successful approaches actually combined bottom-up with top-down. Innovation depends on the interplay between direction and empowerment, even in a company like Best Buy which prides itself on bottom-up innovation. The US retailer has benefited greatly from encouraging store-level experimentation. But what is often overlooked is the key role of top management in providing a strong customer service focus for innovation, minimising the risks of irrelevant innovation.
Besides framing the innovation challenge, top management also plays a vital role at the other end of the process, in deciding what needs to be discontinued. Companies can’t “do it all.” It is only by saying no that companies can concentrate on the ideas that are really important. Of course, this raises the tricky issue of maintaining the energy of those whose ideas are turned down. How their contributions are acknowledged will be crucial factors in keeping the ideas coming.
7: Set evaluation measures and criteria early on.
Early agreement on both tiers of evaluation criteria – at both project and portfolio levels– is the best way to give innovation governance a proper chance of working. For projects, the discussion likely will focus on stage definition and gate criteria by leadership. Good models already exist, so consider modifying an existing model to suit your firm. For portfolio construction, seek to achieve consensus on the meaning of the matrix categories. For instance, how does the firm define its core, its adjacent opportunities in terms of capability and technology, and transformational or so-called disruptive opportunities where technical feasibility may be unknown? Likewise, engage leadership on the customer benefit spectrum, from well understood and accepted, to more distant and speculative. In doing so, you will reinforce the purpose of innovation governance, which is to achieve process stability by means of consistently applying evaluation criteria to make better portfolio decisions. Leadership alignment will come easier, project teams will know when the size of the prize exceeds the expected potential, and initiatives with greater promise will receive commensurate resources.
8: Ask your clients.
If you simply ask your customers how you could improve your product or service they will give you plenty of ideas for incremental innovations. Typically they will ask for new features or that you make your product cheaper, faster, easier to use, available in different styles and colours etc. Listen to these requests carefully and choose the ones that will really pay back.
9: Adapt a product to a new use.
Find an entirely different application for an existing product. De Beers produced industrial diamonds but found a new use for diamonds when they introduced the concept of engagement rings. It opened up a large new market for them.
10: Go back in time.
Look back at methods and services that were used in your sector years ago but have now fallen out of use. Can you bring one back in a new updated form? It has been said that Speed Dating is really a relaunch of a Victorian dance format where ladies had cards marked with appointments.
Not only do CEOs and executives want innovation, they demand innovation to drive organic growth, profits and create differentiation. In survey after survey the vast majority of CEOs report that innovation is one of their top three priorities. Yet the gap between “saying and doing” indicates a gap between vision and implementation. The consequences of this gap are significant:
* Poor execution of innovation goals.
* Failure to achieve strategic goals.
* Limited organisational design to sustain innovation.
* The growth of disbelief or cynicism when innovation isn’t pursued or timescales are moved.
* We also believe CEOs and senior executives play a vital role in the success or failure of innovation.
Unfortunately, those roles haven’t been well-defined and as with all roles which are poorly defined, they are rarely well executed. It’s not enough for executives simply to demand more innovation – senior executives must demonstrate links between corporate strategy and the work of innovation, between their vision and the activities necessary to create new products and services and between their expectations and the actual culture of the organisation.
Executives fail to fill this vital role when they:
* are unaware of the role,
* don’t understand the importance of their role,
* delegate the role to others who don’t have the power to execute the role, or under-perform in the role.
* Do not give the innovating manager the backing they need – particularly when circumstances impact on delivery.
If you are looking for assistance in increasing Innovation within your organisation contact IMentor today for a FREE no-obligation scoping conversation!
