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Corporate Innovation
Hamid Houshmand
Barriers to Innovation in Corporate
• If Innovations risks to cannibalize the existing
businesses
• If current customers are not clamouring for the
innovation
• If executives are instinctively oriented to reducing
risks and variability
• If executives become complacent after years
Of success
• If executives seek to retain power by remaining
focused on their areas of greatest competence
Successful Innovation Management
Means Managing the Losers
• Three common issues that create
dissatisfaction with Innovation management
1. Metrics: inappropriate metrics result in
misplaced expectations. The metrics must
highlight the innovation process
2. Project initiation:
3. Innovation process
Metrics in Innovation Management
•
Most companies measure innovation based on the outputs. For example, a common benchmark
demands that 20% of company revenues are generated from products/services launched in the last
three to five years. This may be an appropriate strategic goal, but it does not measure the
effectiveness of the innovation process.
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1.
Effective metrics provide actionable insights to the process of innovation
Revenue return/dollars invested: including both headcount and hard costs of innovation. This
measure provides an indicator as to how well you are allocating resources. Actions derived from
this metric could include a change in the project staffing model or changes to the timing of the
hard costs
Average number of projects/innovation employee: often companies take the approach that
“every idea is a good idea.” So many development projects are started that the staff cannot
devote sufficient resources to any to effectively move them forward. “Addition by subtraction”
can result by limiting, or even capping, the number of development projects allowed in the
pipeline at any time
Average project duration–companies that struggle with innovation have trouble saying “no.” The
slimmest glimmer of hope is enough for the sponsor (often an executive) to keep the project
alive. The pipeline remains clogged, and the best bet opportunities cannot receive the critical
mass of resources they require to move forward. A metric to address this issue is a hard target for
average project duration. This metric results in more frequent and disciplined project review.
2.
3.
Relationship Between Innovation and
Market Needs
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Historically, companies tended to take an “inside out” approach to innovation (i.e., “let the
inventors invent”). The result was that the vast majority of projects had little direct relation
to a market need. While these projects often resulted in neat new ways to use new
technologies, they were usually considered ahead of their time. (A good example is a
mainstream technology used in warehousing and distribution today–RFID (radio frequency
identification). When introduced in the mid 1980′s, they were generally met with market
indifference.)
As the “market driven” buzzword took hold, many companies moved to the other extreme.
Every development project has to have justification from the marketplace. While hit rates on
innovation did improve, this approach lost the “quantum leap” advances–too many of the
projects resulted in small incremental improvements in features/benefits. These were
certainly welcomed, but not market changing.
The most appropriate approach is a combination of the above extremes. We use a
benchmark of 75%–75% of the projects initiated should be market driven. These projects are
targeted from the outset to deliver a specific benefit to a specific market segment. The
desired competitive advantage for the innovator is stated as part of the justification for the
project. Effectively, these 75% of projects are sponsored by the marketing/sales
organizations. The remaining 25% of projects are less constrained. Sponsorship can come
from anywhere within the organization.
World Class Innovation Process
Management
•
State of the art today is the “stage gate” process:
– Development projects are managed through a series of stages.
– Each stage culminates in a review and “go/no go” decision.
– Only those projects that pass through this gate are funded to the next stage.
– Stage One: Concept Definition–the purpose here is to articulate the logic behind the
development concept, as well as the assumptions that justify the project investment
– Stage Two: Proof of Concept–the purpose of the proof of concept gate is to provide
evidence that validates the concept behind the development project. Broad financial
metrics are introduced to begin to flesh out the potential return on the innovation
– Stage Three: Commercial Viability–at this stage, the purpose is to assure the concept has
“scalability”
– Stage Four: Commercial Positioning–the purpose of this final development stage is to
define the most viable positioning of the product/service prior to launch. This stage
serves as the bridge to the commercialization steps
– Stage Five: Launch–the launch stage represents the handoff of ownership of the project
from the development group to the mainstream organization. Product or market
segment management takes ownership. Business plans are developed, including
revenue goals, operational strategies, sales/marketing/channel strategies, etc. to bring
the innovation into the mainstream of the business
Formulas for Innovation
1. Innovation process: Generating ideas, refining ideas,
selecting ideas, implementation: thus innovation = ideas
Result: ideas are more than they can possibly move
forward
2. The innovation = ideas + motivation, which can generate
thousands of small initiatives but cannot support major
projects. No breakthrough innovation rather continuous
improvement through motivating the grass-roots
3. The innovation = ideas + process, which can efficiently
crank out innovation after innovation (launching new
tractor with cutting-edge technology at Deere & Co)
4. In innovation = ideas + leaders formula, a talented leader
is supposed to be able to overcome whatever barriers
Genius is 1 percent inspiration, 99
percent perspiration
Thomas Edison
• The real innovation challenge lies beyond the idea
• It lies in a long journey from imagination to impact
• Crux of the innovation challenge is that business organization is not
designed for innovation.
• Organizations are designed for ongoing operations (“Performance
Engines“)
• There are deep and fundamental conflicts between the two
(innovation initiatives and operations)
• Performance Engine, with its focus on what is predictable and
repeatable, can not single-handedly take on innovation, which is by
definition non-routine and uncertain
Corporate optimal organization for
Innovations
• Every innovation initiative requires:
– A innovation leader
– A dedicated team with a custom organizational model
– A plan that is revised through a rigorous learning process
• In other words: a formula like: Idea + leader + team + plan
• Performance engine
• Partnership between the dedicated team and the Performance
Engine product development group may be capable of handling all,
some or none of the product development tasks (Deeres, MBW,
Electrolux)
• Combination of dedicated asset and the asset of the Performance
Engine
• The partnership, not just the dedicated team, executes the initiative
Creating the dedicated team
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•
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Identify the skills that is needed
Hire the best people that you need
Match the organization model to the dedicated team’s job
The most common pitfall is choosing too many insiders and too few
outside hires
– Pride, familiarity, comfort, compensation norm
• Success of the team once the team is able to overcome the organizational
memory
• Create a separate physical space for the dedicated team
• Create new titles and write new job descriptions for everyone in the team
• Assess the performance in line with the team’s objectives, not the
Performance Engines
• The dedicated team should define its own metrics, processes and culture
Managing the Partnership
• Always a partnership between the dedicated team and a shared
staff of the Performance Engines
• The most critical characteristic of successful innovation leaders is
that they take a positive, persuasive, and collaborative approach in
their interaction with the Performance Engine
• Conflicts with the PE is frequent and can be intense. The leader
need help from the above
• Resources are allocated to the innovation initiative through a single
process, by which the resource conflict with PE is resolved
• Maintaining a healthy partnership is difficult, as the two units are
quite different and unlikely to naturally work together
Ten innovation myths
Myth
Truth
1. Innovation is all about ideas
1. Ideas are only beginnings
2. The great leader never fails at innovation
2. When it comes to innovation, there is nothing
simple about execution
3. Effective innovation leaders are subversives
fighting the system
3. The primary virtue of an effective innovation
leader is humility
4. Everyone can be an innovator
4. Ideation is everyone’s job, as are small
improvements in each employee's direct sphere of
responsibility
5. Innovation happens organically
5. Innovation initiatives of any appreciable scale
require a formal, intentional resources commitment
6. Innovation can be embedded inside an established
organization
6. Innovation is incompatible with ongoing operations
7. Catalyzing innovation requires wholesales
organizational change
7. Innovation requires only targeted changes
8. Innovation can only happen in skunk
8. Innovation can not be isolated from ongoing
operations. There must be engagement between the
two
9. Innovation is unmanageable chaos
9. Innovation must be closely and carefully managed
10. Only start-ups can innovate
10. Many of the world’s biggest problems can be
solved only by large, established corporations
Accountability of Innovation
Management
• Holding managers strictly accountable to plan
can be extremely powerful
• But this positive benefit is only available in
environment in which it is possible to make
reliable prediction
• The predictions that guide innovation
initiatives, of course are anything but reliable