Rethinking the Value of Innovation

This the first in a series of posts:

• Find the second post here. Introduction to Disruption Resilience: Agile Scenario Analysis
• Find the third post here. Disruption Resilience: Executive & Innovation Teams Joint Planning

It has been approximately eight months since the first COVID-19 shelter-in-place orders disrupted the operations of millions of businesses across North America. The long-term economic repercussions of this situation are not fully clear as of yet, however there are a few things we do know: many industries have been permanently disrupted and forced into a paradigm shift. While bracing for uncertain economic conditions, many businesses have cut budgets and managers are required to navigate new rules of engagement of a new paradigm, and do more with less.

This perfect storm of global uncertainty and dramatically reduced budgets is a manager’s worst nightmare. However we see today’s business climate as an opportunity for corporate innovation teams to step up as heroes.

“The reality is that operational efficiency alone will not save an organization in times of turmoil — paradigm shifts require fundamentally different solutions. Enterprises, particularly those with brand loyalty and a strong base of existing customers, are well-positioned to invest in innovation to win in the land grab of the future. ”
— Ali Geramian, Managing Director, Innovation & Enterprise Solutions, KPMG LLP

To capitalize on this hidden opportunity requires a rethinking and rebranding of the value of most innovation activities. In many organizations, innovation is often seen as a speculative, intangible, non-core-business activity — a nice to have pursuit which warrants investment when times are good and one of the first to get cut when times are bad. This organizational perception is understandable as many departments and business units are not aware of what business activity innovation departments are actually responsible for or what results they are meant to achieve. Unfortunately, the historical rise of innovation labs outfitted with open concept designs, ping pong tables, quotes on the walls saying “the art of the possible” have not helped with this perception and transparency issue.

Various States of Innovation Maturity

Almost two years ago I published a post mapping the Innovation Manager Journey based on annual interviews we conduct with teams from different industries (Financial Services, Manufacturing, Government, CPG, etc.) and whom have different levels of experience executing innovation strategies (6 months to +5 years). Looking back, our early 2019 finding still hold true. However, based on the nature of our client projects, conversations we are having with our clients, and conversations with other innovation teams in our network, have noticed three levels of innovation sophistication:

Innovation Theatre: CB Insights has created a great guide here.

Mainstream Innovation: This state maps very closely to our early 2019 findings. Innovation teams are still frustrated with a lack of committed resources and alignment with Leadership. Often innovation activities do not have clear processes, are often run ad hoc, and results are not measured. Innovation Teams are often not aligned with other business units regarding strategic priorities, nor are they communicating their objectives or results with the broader company.

Advanced Innovation: This state is the end goal for any Innovation Team, and I ensure you this state exists in some companies already. We define Advanced Innovation in eight pillars:

1. Objectives and strategy
2. Alignment with, and support from Leadership
3. Alignment with business units regarding strategic priorities
4. Integration with cross business functions specifically, procurement, legal, IT and risk
5. Documented processes for operating innovation activities (for example, sourcing ideas, decision making, reporting, project cadence etc.)
6. Adequate resources are committed (time, people and budgets)
7. Results are measured, and learnings are documented
8. Communication strategy to Leadership and the broader company

Value of Innovation

In reality, if structured properly, innovation activities can add significant strategic value, for example:

1. Short-term Efficiency: Improving operational efficiency and reducing costs through technology adoption and workflow automation
2. Long-term Strategy: Contributing to C-suite’s corporate strategy by helping prepare the business now for different forms of potential disruption (for example new startup entrants or black swan events) and the inevitable industry evolution over the longer-term
3. Cultural: Helping to foster a more customer centric, resilient, innovative and entrepreneurial culture through the adoption of different entrepreneurial toolkits such as Lean, Agile, Design Thinking etc.

Now that the opportunity has been defined, let’s discuss the details of how to capitalize on it. The current issue of innovation losing support during times of uncertainty as described above boils down to problems of process inside and outside of the innovation department, and the perceived value of innovation outside of the innovation department. Both the process and perception problems can be further refined as: innovation is often seen as speculative, intangible, and non-core-business activities.

Challenge Innovation as Speculation

Have an Innovation Strategy

“Companies that govern innovation extensively delivered 2x revenue growth compared to those following a haphazard approach”
— 2020 Accenture Governing Innovation Study

Depending on the company, Innovation Strategies can look very different depending on the strategic corporate objectives. Generally, an Innovation Strategy maps out what the Innovation Team plans to accomplish, how those results contribute to the overall company’s direction, and what they will do to get there. More specifically, an Innovation Strategy:

• Defines the short-term and long-term innovation objectives of the company (for example: brand enhancement, cultural change, operational efficiency, new product development, etc.)
• Creates alignment between the innovation objectives and corporate strategic objectives
• Defines the projects or programs (lab, hackathon, corporate venture capital, PoCs, etc.) used to achieve the innovation objectives
• Defines the resources required (i.e. budget, people, time, systems)
• Defines how results will be measured and potentially what results can be expected in return for resources committed

Having a clearly defined Innovation Strategy directly challenges both the process and perception problem of innovation being a speculative activity. In a follow-up post I will dive deeper into elements of an Innovation Strategy document.

Have an Innovation Process Playbook

“The study’s findings are a further confirmation that innovation excellence isn’t something that can be bought by simply spending more on R&D. Rather, it’s the result of painstaking attention to strategy, culture, senior executive involvement, deep customer insights, and disciplined execution across the innovation cycle.”
— 2018 PWC Global Innovation 1000 Study

Defining an innovation process is different from an Innovation Strategy. An innovation process is a playbook for the workflow and operations to run the innovation programming set out in the Innovation Strategy. For example, if operational efficiency and cost reduction is a strategic corporate objective, then an innovation objective might be workflow automation through pilots and PoCs with startups. In this case, an Innovation Playbook might outline how that pilot or PoC process works, including problem identification and validation, solution sourcing, pilot scoping, procurement on-boarding and legal contracting, delivery via sprint cycles, post-mortems and measurement.

In a follow-up post I will explain the process Multiplicity has developed to launch and manage pilots and PoCs called Collaborative Scoping, which combines elements of the Scientific Method, Design Thinking, Traditional Corporate Procurement processes, Lean Procurement, Agile Project Management, and Lean Startup Methodology.

Challenge Innovation as a Non-Core Business Activity

“77% of fastest growing firms say their innovation strategies are highly aligned with their business strategies”
— 2018 PWC Global Innovation 1000 Study

A key role of C-suite’s responsibilities is anticipating what their industry will look like in 5 or 10 years, and setting long-term strategy for the business. Thinking about and preparing for how an industry will evolve over a long period of time is, similarly, the Innovation team’s responsibility. That being said, it’s concerning how little support innovation gets from executives and how little communication occurs between these two groups. Ideally, the Innovation Department should be seen as a Special Operations team at the disposal of the C-suite to help achieve corporate strategic objectives. At its core, an Innovation Department’s role is to:

1. Interface with the Executive Team and internal departments to align on strategic objectives and potential disruptive threats
2. Collect assumptions about the core business operations from the Executive Team, and internal departments.
3. Create and run experiments that solve business problems, test those core business assumptions, new technology, and ways of working.
4. Capture and accumulate learnings gathered from completing those experiments.
5. Communicate those learnings and results to the Executive Team and broader company, which should inform future strategic planning.

An Innovation department should be viewed as both a team to solve problems and also a team that accumulates organizational learning about the business.

Our next posts on Disruption Resilience will explain an exercise Multiplicity created to help the Executive Teams and Innovation collaborate on steps 1 through 3 noted above.

Challenge Innovation as Intangible

As noted in the sections above, setting clear objectives that are aligned with the corporate strategy, then measuring and communicating results are key steps in any innovation process. Additionally, the communication of the innovation objectives and actual results generated help fix the perception and transparency problem discussed earlier.

In a later post about the elements of an Innovation Strategy document, I will show how a company-wide communication strategy fits in, and how an Innovation Team should be measuring and accumulating results.

As I alluded to throughout this post, this the first in a series of posts. In the next post we will be introducing a framework we created called Disruption Resilience, which helps Leadership Teams plan for disruption in all of its causes, and aligns the Leadership Team and the Innovation Teams on core business assumptions to be tested.

• You can find the second post in the series here: Disruption Resilience Through Advanced Innovation: Agile Scenario Analysis.
• Find the third post here: Disruption Resilience: Executive & Innovation Teams Joint Planning