In today’s complex and competitive business environment, most companies rank innovation as one of their top strategic priorities. In a recent study conducted by the Boston Consulting Group (BCG), more than three quarters of the business leaders surveyed ranked innovation as either their top, or one of their top three, strategic priorities.
Many organizations struggle to truly innovate. Often because they are restricted by a narrow definition of innovation or are limited by thinking of innovation relative to their industry or competitors.
What is Innovation?
Innovation can be defined as the process that makes new and unexpected ideas useful. In other words, innovation delivers significant business value. Often organizations confuse innovation, continuous improvement and creativity.
Continuous improvement can be defined as the process that generates improvements to existing situations. While these improvements may contribute to better business results (e.g., productivity), they are not innovation. They are simply better ways of doing things.
Creativity is a key contributor to innovation. It can be defined as the process that generates new and unexpected ideas. Creativity may generate new and different ideas, but creativity does not necessarily include ways to operationalize the idea and exploit it for business value.
It is important to distinguish between creativity, which is an activity, and innovation, which is an outcome. Not all innovation is created equally. Innovation can be described in three ways:
Incremental innovations are small changes to a company’s existing products, services, technologies and business models which deliver improved business value. At first glance, incremental innovations can look like continuous improvements. The difference is that incremental innovations unlock net new business values. For example, Nabisco introduced 100-calorie snack-sized Oreo cookie packages to meet the needs of health-conscious consumers, thus opening up a net new market of health-conscious cookie buyers.
Breakthrough innovations make significant changes and produce large growth. This growth may be short-term as competitors copy the innovation. Breakthrough innovations typically draw on existing capabilities that are put to use in new and different ways. For example, Ikea has modified furniture like tables and lamps that allow people to wirelessly charge smartphones and tablets.
Transformational innovations, which take place more rarely, combine technology and business model innovation to create major new industries with exponential growth. These sorts of innovations are called market disruptors or game changers. They generally require the development of new business capabilities for customer understanding, explain radically new products, services or processes that have no historical data, and to develop markets that aren’t yet mature. Apple’s iTunes store, which has revolutionized the music industry, is an example of a transformational innovation.
Getting Innovation Right – It Starts with Strategy
Successful innovation requires focus, effort and a clearly defined process with proper governance. The first step is to set a strategy and define an innovation agenda or mandate. To do this, you must consider a number of factors such as organizational risk tolerance, financial conditions, resources and business goals. The outcomes of this step should be:
- A clearly articulated vision and definition of innovation.
- A portfolio of goals and governance mechanisms.
- Criteria for innovative ideas (i.e., what makes something innovation versus continuous improvement).
- A clearly defined process for brainstorming innovations.
- A road map and supporting activities that create the right culture to sustain innovation.
Next, You Need a Process
You need to make sure that you have a process in place to identify innovative ideas, accelerate their implementation, launch and measure results.
Step 1: Generate and Select Ideas
Many organizations put processes in place to identify innovative ideas. However, the ideas generated are often more business improvements than innovations.
In order to achieve true innovation you need to make sure that people understand how you define the term. You also need to make sure that a process is in place to capture and rate the ideas that are submitted. Your process should include generating a continuous flow of ideas from internal stakeholders, customers and partners.
Step 2: Implement the Innovative Idea
The second step of the process involves implementing the ideas selected to become projects as quickly as possible. Innovation is about speed and this requires a different approach. These projects need different new internal governance guidelines (e.g., smaller decision-making teams or different project gates) in order to approve ideas or funding and make agile decisions throughout the project lifecycle and different project milestones. At the same time, it is important to ensure that the quality of the project is not negatively impacted by speed.
Finally, it is critical that there are clear criteria and processes in place to stop innovation projects quickly during the implementation phase if they will not deliver significant business value. This means putting personal agendas aside and doing what is best for the business. The truth is many innovation projects fail before launch, and this is something that people and organizations need to embrace. Instead, be ready to identify failures as quickly as possible and apply lessons learned toward future projects.
Step 3: Launch and Measure
The final step of the innovation process is to launch and measure the idea. During this stage the innovation project is implemented and carefully monitored to ensure that it is delivering the intended value. At this point, you also need to be prepared to stop the project. You also need to look for ways to further capitalize on ideas that are working well. Where success is realized, you need to ask questions like, “How else can we use this concept to generate more value?”
In order to make successful projects part of the organizational DNA, they need to be managed and aligned with the existing and emerging innovation portfolio. Because businesses are dynamic, it is also necessary to revisit your innovation strategy on a regular basis and evolve the practice.
Last but Certainly Not Least – The Importance of Culture
Having a strategy and process in place are two good steps, but without the right corporate culture innovation will surely fail. Unfortunately, while many companies spend a lot of time planning their innovation process, very few organizations give enough attention to developing employees’ skills. It’s important to build soft skills like communication in order to create a culture that values and drives innovation.
Research conducted by META found that innovative and entrepreneurial organizations:
- Have senior leader sponsorship for innovation
- Use managers to reinforce the vision and encourage entrepreneurial behaviours
- Collaborate effectively across functions
- Are quick to make decisions
- Value knowledge and capture and share it freely
- Reward and recognize entrepreneurial behaviors
Innovation is no longer optional, it is now required for survival. Organizations must assess their innovation maturity and take action to formalize their internal innovation process, if they don’t already have one. They must also look for ways to improve what they are doing to avoid being the next victim of disruptive competition, which in today’s environment often comes from unexpected sources.
Bottom Line Innovation