Innovation is Dead, Long Live Data! Part 2 — Why Innovation Programs Fail
Read Part 1: What do we mean when we say ‘Innovation’
Introduction
Over the last year, Decoded has seen a natural shift away from company-wide ‘innovation’ skills towards data and advanced analytics.
The volume of data in the world has exploded years surpassing the capacity of institutions to manage and make sense of it. For those that can it is a powerful force to drive innovation.
This data-driven mindset is simple and quick to adopt. Over the coming 6 weeks, Decoded will be discussing this approach and how it will give you the autonomy and confidence to make better data-driven decisions and fuel your business with the power to harness data at all levels providing them with a clear competitive advantage.
The content will culminate in a white paper and two events hosted by us and bring together like-minded people that care about where the industry is going and delivering best practice.
Email us to join the guestlist.
Auckland, 11th November, 5–6.30pm
Sydney, 14th November, 6–8pm
Part 2 — Innovation is Dead! Why do Innovation Programs fail?
The McKinsey Global Innovation Survey in 2010 painted a bleak picture of innovation performance and it has not improved since. The 2017 PwC Innovation Benchmark found that 54% of innovating organisations have trouble bridging the gap between innovation strategy and wider business strategy.
Many large organisations are attempting to run various innovation programs to bring the tools, techniques and ways of working described in Part 1 of this White Paper into use.
The reasons for these failures are not clear cut (if they were it would be simple to overcome them) and due to the complex nature of organisations there are plenty of them. In fact the chances that an innovation program will be considered successful is exceedingly small due to the number of conditions and components that have to be designed and executed correctly.
Viima Research carried out a review of around a dozen of the largest publicly available studies into why innovation programs failed. They broke the reasons down into four aspects of innovation: structures, capabilities, culture and strategy.
Out of those aspects they found that structures featured in all the studies, followed by culture at 73%, capabilities at 55% and strategy at 45%. Our experience at Decoded reflects these findings however our conclusion is slightly different. Whilst structures (remuneration systems, line management reporting, silos etc.) are often called out as the cause of failure of programs we have found that these structures reflect the culture of a company and not the other way around. As such it is culture that is the root cause of most failures in innovation projects.
Culture affects innovation programs in four key ways:
- Unrealistic expectations
- Risk aversion
- No routes to market
- Lack of proper engagement from senior stakeholders
Unrealistic Expectations
Innovation programs are not business as usual. By (our) definition they are programs to instill ways of doing things differently. As a result most organisations do not have people with the experience or skills to deliver them already on the payroll. This means that innovation programs are often “bought in”. This will either be through hiring new people or engaging a consultancy firm (of which, we are, admittedly one) to design, develop and deliver the program.
There will have been a huge amount of internal lobbying to launch a new innovation program, particularly if the new ways of working are not initially seen as beneficial. Headcount and consultants cost money and as a result promises as to the efficacy of these programs will have been made. Potential impacts and successes will have been talked up and the potential failures and downsides will have been underplayed.
When the new hires or consultants arrive to begin mapping out the program they will be under pressure to take the already over-hyped expectations and spruik the program still further.
The final result is a program that is expected to quickly and substantially transform an organisation and deliver immediate tangible benefits, against a backdrop of an organisation that needed persuading in the first place, and so will be waiting to be proved right and the program proved wrong.
The inevitable result of these programs is that they fail to live up to the promise and they are closed down before they have had a chance to change the culture within an organisation.
Risk Aversion
When speaking to our clients we are often told that one of the biggest blockers to innovation is risk aversion. We are told that people do not want to put their names to new ideas. When we dig a little deeper though we find out the truth is far more nuanced, people do not mind putting their names to new ideas but they are scared of putting their names to new ways of working.
The reason for this comes back to culture. In organisations where “things are done a certain way” employees feel that as long as they have followed the process then the outcome doesn’t matter as much as they will be able to pass the blame to the system or process rather than the idea itself. This useful shield does not exist if the idea you are proposing is a new way of working in itself.
The risk aversion we are told about is often no more than an illusion created by habit. In many large organisations new projects, ideas and initiatives are launched on the basis of extremely detailed business plans and cost / revenue forecasts. These documents often run to hundreds of pages (plus the inevitable perfectly produced and beautifully formatted Powerpoint deck that goes alongside them) and can include cost and revenue projections up to 10 years in advance.
This approach makes sense for incremental innovation. If we know that by changing X we will reduce the time it takes to do Y without any loss in quality then we can model the impact the change will have on our cost base and hence our profit margins.
For a capital investment in extending a well established service or product this can make sense. If you are the Hilton Group planning to build a new hotel or Qantas planning your airframe purchase and leasing plan, then this approach makes some sense. Given past experience and known parameters you can make predictions about rates of return etc. Of course, all these predictions usually end up meaning nothing as they fail to take into account major macroeconomic shocks and so are, at best, an educated guesswork.
However to take this approach for an innovative product or service is nonsensical. The business plans are completely reliant on, and indeed are made up of, assumptions. Whilst those assumptions may be based on sound reasoning and experience they should not be relied upon until they have been tested, especially when those assumptions carry significant risk.
The ways of working laid out in Part 1 of this white paper are designed to test assumptions and move projects and ideas forwards in increments, continuously testing assumptions through rigorous data collection and analysis. This approach reduces risk but is poorly understood.
Financial and Leadership Support
Innovation programs are expensive. They require investment in training and carry the additional cost of time taken away from business as usual by everybody from senior leadership down through the organisation. Every investment needs to show a clear return and as mentioned above this can take time. Further to this, by their nature and training, innovation practitioners and experts are keen to test and learn as they roll out programs. As a result, the initial investment is usually small and returns are limited so when it comes to scale up a program it can be difficult to unlock further funding. Without that funding to achieve the scale needed to change a culture in an organisation the program will eventually fail.
For an innovation program to begin it requires sign off from organisation leadership. This is all too often no more than lip service. Leaders know that they need to be seen to be doing “innovation” and they want to be able to talk about their accelerators, hackathons and competitions, but are hesitant to rethink their culture and their ways of working. As a result, innovation programs are seen as a nice to have rather than essential to the survival and success of a business. Without the full support of leadership, any innovation program is doomed to fail.
Nowhere for Ideas to Progress
A common feature of innovation programs is “accelerator” type processes for teams to test out new ideas for products and services. When done well, these can lead to completely new revenue streams and successful innovation. ING have had some great successes with startups such as Yolt because they had a clear plan as to what happens to ideas once they finish the accelerator program.
Too often ideas are tested, validated and demonstrated to be viable new business streams, only to be left to die a slow death due to lack of investment and planned progression. This is extremely damaging as it both destroys the value of the accelerators, and demoralises the most innovative and entrepreneurial people within an organisation, those who came up with the ideas in the first place. Those individuals are key to the success of an innovation program and losing them or leaving them disillusioned is a death knell.
Innovation programs are hard to get right. They need to be extremely well designed, not over promise result, have significant financial resources invested in them and be strongly supported by senior leadership. In our next part we look at an alternative to innovation programs: investing in data and analytics skills.
Email us to join the event guestlist. Two events will be held in Auckland and Sydney on 11th and 14th November.
