Five questions to build your company’s capacity for innovation
What does your innovation process look like? The old saying that innovation is 99% perspiration rings true - we all have ideas, but only a small percentage can follow through to make them work. It's even rarer to repeat the trick.
Carefully recording the obstacles you met and how you solved them so you can create a cookie cutter process is one trick. Having the right learning mindset - truly committing to innovation means being prepared to fail and learning from where you went wrong. A malfunctioning prototype solution isn't a waste of time, but a building block for next time.
We've all been forced to improvise through COVID, and this week's read has plenty of tips for bolstering your business's innovation capability.
Until next time...
The Consilium team
With so much uncertainty about, well, everything, people are realising that innovation — the process by which new things create value — is essential to thriving going forward.
In my work advising senior teams on strategy and innovation topics, I’m getting a lot of enquiries along the lines of, “We need to create an innovation capability, but we don’t know where to start.”
Asking yourself these five questions is a good place to begin. In my experience, you can work your way through them, ideally with a little experienced guidance, in about 30 days. By then, you will know what projects are essential to succeed, how you will get projects into your portfolio (and which you might need to get out of it), where your innovation and growth unit will be located, and how you’ll start to work in earnest with a few small projects.
1. What is your growth gap?
While it’s quite common for executives to promise their investors both performance and growth, the reality is that they are seldom set up to deliver both. Typically, they are paying a lot more attention to day to day performance, as Oyster International’s Don Laurie and Harvard Business School’s Bruce Harreld describe.
A useful way to shake up the status quo a bit is to ask your organisation to articulate their growth gap — in other words, at some point in the future, how much new growth do you expect to get and where will it be coming from? The first thing is to figure out what that aspirational growth number is; this fun video explainer from Innosight explains how.
2. How will your innovation practices be governed?
The governance system in your organization is what gets projects into the portfolio, what stops them when necessary, and helps them transfer to a business unit in the parent organization if they meet their eventual objectives. The governance process also establishes the scope of innovations and defines what is in scope and out of scope. In an ideal scenario, a committee like a growth board meets frequently, has a set of agreed-upon metrics for what kinds of opportunities deserve further development, and is also courageous about stopping or parking things that aren’t ideal to move forward.
There are a number of different models for governing innovation. In some organizations, senior leaders themselves are part of the growth board and are intimately involved in resource allocation decisions. In others, it’s driven by technical functions. In still others, innovation is widespread without specific “ownership,” at least at the early stages. At Amazon, for instance, employees up and down the organization experiment with early-stage projects without a great deal of central direction. It’s only when a project becomes substantial enough to require an irreversible strategic decision that its governance process kicks in.
3. How will you allocate resources for innovation?
It is quite astonishing how often innovations get started, and even get to some considerable size, before someone realizes that they aren’t a good fit with the firm’s strategy (see any telecom company trying to be a media and entertainment business). To address this, go through a process of translating the grand strategies of your firm into specific screening scorecards. While these scorecards are never perfect and precise, they can provide enormous value in immediately distinguishing among things that are potential big wins and things that are unlikely to be, even if they succeed.
Strategy, in a definition I really like that was developed by researchers Don Hambrick and Jim Frederickson, is a central, integrated concept of how you are going to achieve your objectives. Good strategies imply choices. They pull you and your people into the future and ideally provide the grist for an alignment of interests throughout your organization. Unfortunately, this is seldom what happens in real life. What sounded so great at the all-hands town hall often deteriorates into meaningless confusion at the level at which people are making significant strategic choices.
Scorecards are the antidote to this. They let people see the logic behind your strategic choices throughout the organization and spell out what good looks like for your strategy (and conversely what doesn’t). The screening process implicit in the scorecard make it crystal clear which opportunities are desirable and which aren’t, and allow ideas to be mapped against the same set of criteria. The magic is not the scores — the magic is the thinking behind them.
4. Where does your innovation group belong?
Now we come to the question of where to put the people who are actually working on innovation projects (as opposed to the governance committee that allocates resources to it). There are at least 7 archetypes for how to locate an innovation group within the firm. All of them have advantages and drawbacks.
- Put the innovation group inside an existing business unit.
- Create a division within an existing unit specifically for innovations.
- Throw it into R&D.
- Have innovation report to a dedicated, senior staff function
- Create a whole new ventures division.
- Have the innovation group report directly to the CEO.
- Adopt “permissionless” structures.
Note that adopting one of the last three archetypes involves a fairly heavy-duty organizational change effort. So, if you are just getting started, using one the first four probably makes the most sense.
5. How will you get started?
If you are at an early stage, do not start with a huge team, big ambitions, and a major budget. That’s a recipe for total disaster.
Instead, pick a couple of smallish projects in which success can be demonstrated in a small way, and use them to begin to train people on how to plan uncertain projects using a discovery-driven growth approach. This involves planning via checkpoints, rather than by hundred-cell Excel sheets. It involves people learning the approach to testing and learning, discovering which assumptions are valid and which are not. It involves experimentation and what innovation expert Alberto Savoia would call “pretotyping.”
Bear in mind that the progress metrics you will be using for innovation are different than those you would use in the established business. Instead, you’ll want to track how you are doing in learning about customers’ problems and solving them. Appropriate metrics might include progress through checkpoints, the speed of experimentation, the number of interactions with customers, success in creating prototypes, and even the number of ideas rejected in favor of better ones.
To read the full article, visit: https://hbr.org/2021/10/5-questions-to-build-your-companys-capacity-for-innovation