Innovation projects are doomed to keep stumbling over the same obstacles unless leaders act to establish processes that can be used time and again.
Being an innovation leader can sometimes feel like re-enacting the curse of Sisyphus. The work can feel like pushing a boulder up a mountain, only to watch it roll back down to the bottom. Each innovation project has to navigate obstacles and hurdles before progress is made. If the project is successful, the reward is having to do it again with another project: the same obstacles to overcome, the same hurdles to jump over.
But if our goal is continuous innovation, then company leaders have to put in place repeatable and scalable processes for innovation. There are three elements that need to be in place to drive and scale innovation. First, an innovation portfolio that is balanced between efficiency, sustaining and transformative innovations. Second, innovation programs: leaders should avoid ‘innovation theater’ and produce tangible results through strategically-integrated and company-wide innovation activities, programs and investments. And finally, innovation culture: a culture in which innovation has power, legitimacy and influence.
Innovation portfolio
Most established companies already have a successful business in place that needs to be managed. To succeed with innovation, leaders have to be good at simultaneously leading teams that are exploiting current success, and managing teams that are exploring new opportunities. It is important for leaders to understand that they cannot manage their exploration using the same tools and principles they use to run their core business. To drive a successful innovation portfolio, leaders need to focus on three things.
1. Maintaining a balanced portfolio
The easiest ideas for leaders to invest in are those that improve the core business, or are immediately adjacent to what the company already does. This is why leaders have to be deliberate and strategic about the composition of their innovation portfolio and the types of innovation they are investing in. Leaders have to strike a balance between the three categories of innovation identified by Clayton Christensen.
- Efficiency innovation that focuses on improving operational excellence in the core business (e.g. technologies that improve distribution)
- Sustaining innovation that explores opportunities to build on top of a company’s existing business model (e.g. new products and services for existing customers)
- Transformative innovation that helps a company create growth from new value propositions or business models that are different from anything the company has done before.
Leaders need to set out a clear ambition for the balance they are trying to achieve. Bansi Nagji and Geoff Tuff recommended a balance of 70-20-10 in their Harvard Business Review article over a decade ago (‘Managing Your Innovation Portfolio’, May 2012). Using our categorization, that would mean using 70% of resources for efficiency innovation, 20% for sustaining innovation and 10% for transformative innovation.
A company should set its own ambition based on its industry or strategic goals. The value comes from leaders making their ambitions explicit – and the commitment to allocating and protecting resources for innovation. When Chinese insurance company Ping An started working on its strategic shift in 2018, chairman and CEO Peter Ma committed to spending 1% of revenue (around 10% of profit) on innovation every year.
2. Maintaining a healthy funnel
Within an existing business, choosing the best ideas is relatively easy because we know the customers, the value propositions and the business model. The further you move away from the existing business, the harder it is to pick winning ideas. With transformative innovation, the best way to find winning ideas is to start by making multiple small bets. Investment can then be increased over time, but only in those ideas that are showing traction.
The Bosch Accelerator program invested in 200 teams over three years, with each team receiving an initial investment of $120,000. This produced 15 successful teams with projects that were taken to scale with follow-on funding.
Smaller businesses can also follow this approach. Innovators at steam iron maker Laurastar initially developed 14 ideas, of which three teams went into an innovation sprint and one idea was successfully executed.
In essence, this is the venture capital approach to investing in innovation: the more bets we make, the greater the chance of finding ideas that provide outsized returns on investment. Success is driven by maintaining a healthy innovation funnel where leaders are consistently investing in new ideas.
3. Making evidence-based decisions
Leaders should avoid pouring resources into their pet innovation projects. If the goal is to consistently find the best ideas, then leaders need to work with their teams to develop an innovation framework that specifies innovation stages and investment criteria.
When I worked at the global education company Pearson, we developed the Lean Product Lifecyle (see ‘The Lean Product Cycle’ at tendayiviki.medium.com). This framework outlined six innovation stages: Idea, Explore, Validate, Grown, Sustain and Retire. At each stage, we specified the criteria that teams had to meet to earn their next level of investment. For example, during the Explore stage, teams had to provide strong evidence of a real customer need before they could get investment to start building a product.
Innovation programs
Innovation programs provide a systematic way for teams to work on their projects. Rather than working on their own, teams can join a program that comprises multiple innovation projects and offers consistent resources and support. Examples of such programs include accelerators, incubators, open innovation and coach training.
The challenge for leaders is to make sure that innovation programs are developed in a strategic way. I have been in organizations where several innovation programs have been started. Some have different names but deliver the same value. Some have opposing goals and ambitions. This phenomenon of ‘little fires everywhere’ can undermine our goals to drive continuous innovation. The fundamental question is whether innovation programs are producing results.
To develop world-class innovation programs, leaders should focus on three things.
1. Creating value
With value-creation, our innovation programs are focused on producing economic value for our company. The measure of success is impact on the bottom line; companies need to avoid lapsing into innovation theatre, where there is an excessive emphasis on idea generation. (See ‘The innovation theatre trap’, Dialogue, Q4 2021.)
Ultimately, the goal is to go from ideas to business. As such, companies should avoid running idea competitions without a process for supporting the winning ideas to develop new profitable business models. Similarly, companies should avoid hackathons that create prototypes that are not then tested with customers for value proposition resonance.
Well-designed accelerator or incubator programs help teams to create new products and services that are transformed into value propositions that resonate with customers and business models that are profitable and scalable. Real world examples include the Bosch Accelerator Program, Sony Startup Accelerator Program and Bayer’s Catalyst Fund.
2. Changing culture
Beyond value creation, continuous innovation is also driven by innovation programs that transform the company to establish an innovation culture. The measure of success is whether innovation is now a repeatable process in the company. Inovation teams should not keep running into the same obstacles year after year. Instead, leaders should institute innovation programs that drive transformation.
A great example of a company that used innovation programs to drive culture change is Intuit, which created a framework of tools and methods called Design for Delight (D4D). To scale the toolbox’s impact, Intuit recruited and trained a group of coaches, called Innovation Catalysts, who were embedded across the company. Their role was to support innovation teams as they did their work.
3. Interconnecting programs
One of the problems with having little fires everywhere is that no innovation program can succeed on its own. Even if the program is driving value creation or cultural change, it needs to be part of a wider ecosystem. This is why it is important that innovation programs are connected in a strategic way.
Most innovation programs need other programs within the company to support them. Technologies from the R&D team can be taken through a corporate incubator program to develop the right business models. Training programs are most effective if they are supported by programs that allow people to practice what they learned. Having interconnected programs ensures alignment, which helps to embed continuous innovation.
Innovation culture
I have had conversations with several leaders who lament the fact that their direct reports are not coming to them with enough breakthrough ideas. The blame for this is usually placed at the feet of the employees: they need to do better.
The question is whether employees are reticent by choice, or not talented enough to generate good ideas – or whether it is something about their company culture that is driving their behavior. In my experience, a lack of talent or willful withholding are not the real reasons that employees don’t bring breakthrough ideas to their leaders. It is the fear of how those leaders will respond.
A company’s innovation culture is not a mythical vibe that is created by having fun events and cool rooms with whiteboards, beanbags and sticky notes. A company’s culture is driven by what the leaders celebrate and reward. As Alexander Den Heijer noted, “When a flower doesn’t bloom, you fix the environment in which it grows, not the flower.” To create a culture that enables innovation, leaders should focus on three things.
1. Visibly supporting innovation
Without leadership support, continuous innovation is impossible. Lower-level employees may be able to contribute to designing a repeatable process, but they need strong leadership to implement and maintain that process. The strongest signal that leaders can send about the importance of innovation is by how much time they personally spend on it.
In my work with companies, I have found that CEOs tend to spend less than 10% of their time on innovation. But when a CEO spends such little time on innovation, it is a signal to the company that innovation is not important. Innovation programs usually succeed when they have highly visible support at the top. For example, Intuit’s D4D program was strongly and visibly supported by the then-chief executive, Scott Cook.
2. Designing the right organization
It is important that leaders design their organizations to give innovation some legitimacy and power. In some organizations, the head of innovation is not a C-level role: instead, this person reports to the senior vice-president of product development, who reports to the chief marketing officer, who reports to the CEO. Innovation might sit three levels away from where the most critical decisions on company strategy are being made. Innovators are acutely aware of their lowly status.
The right organizational design can help. Appointing a chief innovation officer at the C-level is one option, such as Vinith Poduval, who works at the Wisconsin-based dairy foods manufacturer Schreiber Foods. A more extreme example is Ping An, where Peter Ma appointed Jessica Tan as co-CEO with a mandate to drive innovation.
3. Creating a world-class innovation practice
Exploring new ideas is about searching for value propositions that resonate with customers and business models that are profitable. This is why leaders need to put in place the right tools for innovation. Visual tools such as the value proposition canvas and business model canvas are useful for designing business ideas. Organizations also need a toolbox for running experiments and capturing learnings.
Working with new tools requires training for innovation teams – but training everyone is not always possible. A practical way to scale innovation practice is by training a group of innovation coaches who can in turn support the teams while they work. At Pearson, we trained several Product Lifecycle Coaches – an approach we borrowed from Intuit.
Another critical factor for success is whether leaders are willing to accept failure. When teams test ideas there is always the possibility that they will learn that the idea is not viable. A climate in which leaders celebrate this outcome will help teams consistently and honestly share what they are learning.
The end of one-off innovation
Leaders have to stop managing innovation as a series of one-off projects. We have to make sure that each new innovation project does not face the same challenges faced by previous projects. If our goal is continuous innovation, then we have to put in place repeatable and scalable processes that include a balanced innovation portfolio, innovation programs that produce results, and an innovation culture that enables innovation by giving it power and legitimacy.
