How To Overcome The Biggest Antibody To Corporate Innovation
The Real Challenge In Corporate Innovation
It seems many enterprise organisations are beginning to realise that they need to shift from cost efficiency to value creation. This concept alone is orthogonal for most companies, as they have spent the last number of decades structuring, systematising, out sourcing and off-shoring processes to optimise for efficiency.
But increasingly enterprises are noticing the race condition where technology advances allow start-ups and international competitors to disrupt their industry.
Rightly, there is a renewed focus on innovation. Unfortunately a lot of the energy and investment is poorly placed, at idea generation.
So there are a ton of methodologies, not to mention software tools, that enable idea generation, to develop an “Innovation pipeline.” Investing in these certainly imbues a sense of energy, even ownership, but I’m not convinced it really increases output of commercialised innovation. At least not competitive innovation.
It’s not that generating ideas isn’t important for innovation, it just shouldn’t be the focal area. Because generating ideas isn’t that hard. Give me a couple of hours with smart people from across the business and we can generate 100 ideas, prioritise 10, and produce a rough ROI. You simply don’t need a 6 month competition open to every worker in the field. Although you do want to empower people with good ideas to develop them.
The real challenge for corporate innovation, like any innovation, is not idea generation and management, it’s execution. Or more specifically executive sponsorship and resourcing to enable execution.
The Challenge For Sponsorship
Well structured organisations distribute budget amongst business units, thereby (somewhat) delegating authority for investment. Well governed companies will have a process to evaluate the cost/benefit of an investment, the business case. For innovation this immediately raises three challenges:
1. Business Cases Evaluate The Wrong Criteria
Almost by definition the business case process evaluates the wrong criteria, or at least criteria that is incredibly difficult to justify. It is almost impossible to identify the investment cost of a new product or service. Let alone the technology required (almost always the smallest component), there are skills you may or may not have, changed processes, educating staff and customers, and so on.
The benefits are equally hard to quantify. Especially if you need to move from a traditional revenue stream to a new one. Executives are measured, and remunerated, on achieving their (legacy) KPI’s. So anything that threatens those will be rejected, even if it is good, essential, for the business at large.
Consider the executives working on optimising inventory at Borders & Blockbuster that entirely missed the Amazon & Netflix threats.
2. The Wrong Applicants
Not only does the standard business case to raise funding for an innovation evaluate the wrong criteria, but generally the individuals raising the business case are the wrong people. Especially if the novel idea was crowd sourced.
The erstwhile engineer with her novel feature often doesn’t, and probably shouldn’t, know the first thing about raising a business case. Let alone the political astuteness and influential skills to drive this through an organisation.
So instead of the good ideas gaining traction, you end up with frustrated staff trying to learn skills just to get something adopted.
3. Glacial Processes
Finally the corporate approach to investment is designed to minimise risk. So it engages the widest audience to ensure that some inter-dependency doesn’t catch you out later on. There are also very real, and important compliance regulations to adhere to. All of this takes time.
It takes time because no matter the lip service to “agile” most companies still operate in an annual budget cycle, so the investment needs a (capital) budget, which must be weighed against all of the other investments.
In the meantime the start-ups like Netflix, and truly agile enterprises like Amazon, have iterated through 100 bad ideas and added 23 new features to their products and services. Last year Amazon added 512 new products to AWS. That’s almost 2 every working day.
A Heretical Proposal
What if we could turn the challenge, and corporate anti-body on it’s head? What if we didn’t have to justify for innovation budget? If leaders drove the business case for innovation, rather than the innovators? What if we could increase the cadence for investment, and reduce the amounts?
I believe we can relatively simply. Although as with all simple ideas, execution will be challenging.
1. Strategic Intent
This begins with strategic intent. The executive leadership agrees that innovation is a strategic imperative. They determine an enterprise wide, ring-fenced budget for innovation. This could be a percentage of profits, margin, or revenue depending on the industry. But it is imperative that it is ring-fenced.
More innovative firms can increase funds for these ventures through partner collaboration, tax offsets, and government grants.
The second part of the strategy is to add a KPI for every budget owner for innovation. There is no point having allocated budget for innovation if leaders and managers are focused on business as usual.
Over time the weighting of this innovation KPI needs to be evaluated against operational KPI’s to increase the energy throughout the company.
2. Corporate Kickstarter — Crowd Funding
As we mentioned at the outset, the challenge for innovation is not idea generation, it is funding. The premise here is that every budget owner has a percentage of their budget ring-fenced for innovation. As innovations are proposed — through labs, skunkworks, affiliated incubators, or from the field — executives can apportion some of their budget to an innovation. Just like public crowdfunding, if enough business leaders believe there is validity in the innovation, it gets resourced. If not, no time has been wasted trying to build a business case.
This accelerates the evaluation process. Furthermore it drives agile and lean startup principles through the organisation and allows staff do what they do best. Most importantly, the business leaders, the investors, build their individual “component” business cases for a given innovation.
E.g. If as the HR manager, you’re only investing $1,000 on a “GPS Tracker for Delivery Staff” you don’t need to evaluate every potential business benefit, just the one that improves employee satisfaction (or OHS), and that is relatively easy for you to determine. The Operations Manager might put $10,000 to the idea, because her ‘return’ is in operational efficiency, and so-on.
3. Incentives and Returns
This model drives both short-term and long-term returns.
Initially budget owners have global incentives, via their innovation KPI’s to look for the most appropriate innovations to their business. Increasingly they’ll have incentives to support their (multiple) investments with staff and resources, in order to accelerate the return. Over time teams of trusted innovators will form with successes.
The long-term return comes via dividends from equity. Essentially as the innovation drives revenue increase, or cost savings, the investing leaders realise a percentage of those to their overall budget. As the innovation budget is a percentage of their overall budget, they naturally will have more to invest in innovation over time. But also more to invest in operations.
If, as discussed, the real challenge to legacy enterprises driving real innovation is indeed resourcing increasingly small, yet powerful, ideas within the company, we need to approach investment differently.
Crowd funding has proved successful in the public domain, and with the appropriate governance, has the opportunity to overcome natural antibodies within enterprise.
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